Section 79 plans
- The ability to purchase permanent life insurance with corporate dollars
- Deduct all of the cost to the C corporation as a business expense
- Allow the transfer of corporate dollars to the business owner on a tax-favored basis
- Grow the money in the plan in a tax-deferred setting
Full Answer
What is a section 79 insurance plan?
A section 79 plan is a type of life insurance that is offered as a benefit to employees. This type of life insurance coverage is desirable because the premiums are entirely tax deductible for the business as long as the value of the insurance is less than $50,000 per employee.
Do you need to start selling Section 79 plans?
If you are an insurance agent and are being told by an IMO or insurance company that you need to start selling Section 79 plans so you can get in the business market and make a bunch of money, resist the sales pitch. If you are a business owner being pitched a plan, resist the sales pitch.
What happens if you don't report a section 79 plan?
Section 79 plans may be “reportable transactions” to the IRS, or they may not, depending on who you ask. But if they are, and you don't report it, there is a substantial penalty and fines associated with it. I imagine a plan like this also increases the likelihood of audit of the corporation.
What is Section 72 (m) (3) of the US Code?
U.S. Code § 79. Group-term life insurance purchased for employees. the amount (if any) paid by the employee toward the purchase of such insurance. the cost of any group-term life insurance which is provided under a contract to which section 72(m)(3) applies.
What is Section 79?
Section 79 plans are commonly known for the $50,000 free term life insurance they can provide for employees. Less commonly known is that Section 79 plans can also provide permanent life insurance. These plans are employee benefit plans established under Section 79. of the Internal Revenue Code.
What are the benefits of Section 79?
WHAT ARE THE BENEFITS OF A SECTION 79 PLAN? Section 79 plans provide life insurance benefits for employees paid for by the employer. The life premiums paid are 100% tax-deductible to the business. The “economic benefit” of the life insurance is reportable as taxable income for the insured employee. Only life insurance in excess ...
How many employees are required to be non-key employees?
Non-discrimination rules do apply. 70% of all full time employees must benefit, or 85% of participants must be non-key employees. All participants must be offered the same type and amount of benefits. Special rules apply for companies with less than ten employees.
Is a Section 79 plan an employee?
Section 79 plans are only for employees. Self-employed individuals, partners and owners of S corporations are not employees. For an owner to participate the sponsoring employer must be a C Corporation.
What is section 79?
How It Works. Section 79 is the section of IRS Code that encourages/allows employers to offer life insurance (along with health insurance) to their employees. The tax deduction for it is in section 162 of the code. The rules are that you can deduct the premium cost for $50,000 of group life insurance for each employee.
How does section 79 work?
Instead, a section 79 plan is another way for agents to earn huge commissions on cash value life insurance by capitalizing on your dislike of taxes while requiring you to deceive your employees . Avoid these plans and those who sell them like Ebola.
Is a Section 79 plan a reportable transaction?
Section 79 plans may be “reportable transactions” to the IRS, or they may not , depending on who you ask. But if they are, and you don't report it, there is a substantial penalty and fines associated with it. I imagine a plan like this also increases the likelihood of audit of the corporation.
Can you buy life insurance with Section 79?
The basic pitch behind section 79 plans is the opportunity to buy cash value life insurance using pre-tax dollars. The returns on cash value life insurance tend to be low, but if you could buy them with pre-tax dollars (and of course borrow money from them tax-free but not interest free) the after-tax returns start to look a lot more attractive. The insurance agents sells it like this:
When does section 409 of Title 42 apply?
The amendments made by subsection (d) (2) [amending sections 3121 and 3306 of this title and section 409 of Title 42, The Public Health and Welfare] shall apply to taxable years beginning after December 31, 1983.
When does subparagraph A apply to retirement?
In the case of any plan which, after December 31, 1986 , is a discriminatory group-term life insurance plan (as defined in section 79 (d) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]), subparagraph (A) shall not apply in the case of any individual retiring under such plan after December 31, 1986.
When did the 170b Act become effective?
If an educational organization described in section 170 (b) (1) (A) (ii) of the Internal Revenue Code of 1986 makes an election under this paragraph with respect to a plan described in section 125 (c) (2) (C) of such Code, the amendments made by this section shall apply with respect to such plan for plan years beginning after the date of the enactment of this Act [ Oct. 22, 1986 ].”
Does section 72 apply to life insurance?
Subsection (b) (3) and section 72 (m) (3) shall not apply in the case of any cost paid (whether directly or indirectly) with assets held in an applicable life insurance account (as defined in section 420 (e) (4)) under a defined benefit plan.
Does a plan have to take into account employees?
A plan shall not be required to take into account employees to which the preceding sentence applies for purposes of applying section 89 of the Internal Revenue Code of 1986 (as added by this section) to employees to which the preceding sentence does not apply for any year preceding the year described in the preceding sentence.
Does a plan meet the requirements of paragraph 2(B)?
A plan does not meet the requirements of paragraph (2) (B) unless all benefits available to participants who are key employees are available to all other participants.
Does a health insurance plan discriminate in favor of key employees?
the plan does not discriminate in favor of key employees as to eligibility to participate, and. (B) the type and amount of benefits available under the plan do not discriminate in favor of participants who are key employees. (3) Nondiscriminatory eligibility classification.
