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Section 162 Bonus Plans: An Alternative Or Companion To NQDC Plans

For decades, companies relied on the 401(k) and other traditional defined contribution and defined benefit plans to secure and satisfy top talent. However, given their contribution limits, these qualified plans are not enough to meet the retirement spending needs of …



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Key Points in This Article
A 162 bonus plan funded with life insurance is a retirement-funding alternative that combines the best of nonqualified and traditional deferred compensation plans.
In these plans, the company pays a tax-deductible bonus to the executive or key employee, who invests the money in a cash-value life-insurance policy that he or she owns as a supplemental retirement plan.
In the leveraged 162 bonus plan, a loan is used to cover the taxes owed on the bonus so that the full amount can be used to purchase the insurance.