Part
One
Q:
What is a Voluntary
Employees' Beneficiary
Association (VEBA)?
A
VEBA is basically a
welfare benefit plan
that provides benefits
to employees and their
beneficiaries. Contributions
to the plan are tax
deductible as governed
by IRC Section 419A,
using a 501(c)(9) trust.
Once the requirement
of the Code Section
419A(f)(6) are satisfied,
there is no limit to
the amount of the deduction
the employer is able
to take for contributions
to the plan. When requirements
of IRC Section 419A(c)(2)
are satisfied, deductions
limited to the cost
of current and post-retirement
benefits are paid off
over the working life
of the employee. Even
for an individual who
is self-employed, this
can be a deduction
of $100,000 each year.
Funds contributed grow
in a non-taxed entrustment
and enjoy nearly complete
asset protection under
the Employee Retirement
Income Security Act
(ERISA).
Q:
Should a business adopt
a VEBA?
Yes,
because a VEBA is one
of the last and best
legal tax shelters
available. A business
is allowed a current
deduction for its contributions
to the plan; in most
cases, the employee
pays no tax on money
which is contributed
for his benefit; values
within insurance policies
accumulate in a non-taxed
entrustment and are
protected from creditors'
claims; and future
benefits purchased
through the plan may
be afforded favorable
tax treatment. Working
owners of closely-held
corporations, along
with self-employed
individuals, find that
a VEBA is extremely
attractive. Their long-term
service with their
companies will give
them the opportunity
to amass large benefits
by building up of capital
within the cash values
held within their VEBA.
Although benefits must
be provided to other
employees, the owner
usually receives a
much larger benefit
than they do.
Non-tax
reasons for enacting
a VEBA include:
(1)
attracting future employees
or decrease employee
turnover;
(2)
increase employee incentive;
(3)
rewarding employee
loyalty;
(4)
VEBA assets are beyond
the reach of lawsuits
and creditors.
If
you would like more
information regarding
asset protection, trusts,
family limited partnerships
or the subject of this
article please call
or email our office.
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