Section 162 Executive Bonus Plan
The simplest way to provide a tax-favored, portable benefit to a key employee or owner — the business pays the premium on a personally-owned permanent life policy.
How it works
The business pays a bonus directly to the insurance carrier as premium on a permanent life insurance policy OWNED by the executive. The bonus is W-2 income to the executive (and a deduction to the business). Cash value grows tax-deferred and is accessible to the executive via tax-free policy loans in retirement.
Variants
Single-bonus: business covers premium only. Double-bonus: business also covers the executive's tax on the bonus. Restricted Executive Bonus Arrangement (REBA): adds a 'golden handcuff' restricting access until vesting milestones are met.
Why owners use it
Selective benefit for top talent without the complexity of NQDC. The executive owns the policy day one — fully portable. Death benefit and tax-free loans give a 'parallel pension' outside qualified plan limits.
Educational only — not tax, legal, or investment advice. Talk through your specific situation with a qualified advisor.