DIRECTORS DEFERRED COMPENSATION

The purpose of deferred compensation plans is to increase retirement income by postponing current income taxation. This allows funds to grow on a tax-free basis. Withdrawals can then be made at a later date when taxes might be lower.

This plan can be executed for a single officer or director. A similar plan may be installed for any person providing services that is not a common law employee.

There are no reports to be filed with the IRS and no additional parties need to participate. However, certain streamlined reporting and disclosure procedures for the Department of Labor may be required. Complex trust or investment accounting is not needed.

The participant and the corporation agree that the fees shall not be paid currently. Monies are accrued and paid later - at retirement, termination, death or disability. Funds should be invested in vehicles that accumulate on a tax-free basis.

Certain types of investment vehicles are required because they segregate the funds in a self-accounting package, provide no direct control to the participant who would incur taxation and, for the corporation, no taxable income is accrued. The best products would be whole life insurance with high cash value growth and annuities if the corporate AMT is not triggered.

Due to the terms of the agreement and non-assignability of the contracts, the participant does not have the current use or control of the money.

Current regulations provide that amounts deferred under a non-qualified deferred compensation plan are included in the participant’s Social Security wage base when services are performed, or later, when there is no substantial risk of forfeiture of the participant’s right to payments. The withholding tax applies only once to payments. If payments are taxed before retirement, they will not be taxed again when actually distributed.