Practical Insights - Non-Profits: Hidden Insurance Contracts Are a Problem for Your Tax Sheltered Annuities

more+
less-

Tax-exempt employers have offered tax sheltered annuities to employees for years. Traditionally, the employers would often assume only a nominal role. No formal plan document would be drawn, and the only written instruments would be one or more annuity contracts (or custodial accounts) entered into directly by the employee with an insurance company or bank custodian. The employer would then withhold money from the employee's paycheck and deposit it with the insurance company or custodian for the employee's account. Until paid out, the money deposited is income tax free and accrues interest tax free.

Effective January 1, 2009, this is all changing, because a new IRS regulation for tax sheltered annuities, also known as §403(b) plans, requires that these plans have a formal written plan document, which, among other things, must identify all of the insurance contracts (or custodial accounts) used by employees under the plan. Because employers may not even be aware of all the contracts (and custodial accounts) entered into by their employees over the years, even if employers adopt formal plan documents, they will not be able to satisfy the contract-listing requirement. Yet failure to comply fully with this requirement by January 1, 2009 will cause the contracts (and custodial accounts) to cease to qualify for special tax treatment.

Please see full insight for more information.

LOADING PDF: If there are any problems, click here to download the file.

Written by:

more+
less-

FordHarrison on:

JD Supra Readers' Choice 2016 Awards
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:

Sign up to create your digest using LinkedIn*

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.

Already signed up? Log in here

*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
×
Loading...
×
×