Secular Trust [402(b)] (nonexempt Trust)
Definition of "Secular trust [402(b)] (nonexempt trust)"
Non qualified plan of deferred compensation whose goal is to compensate key employees without having to provide similar benefits to rank and file employees. The trust is irrevocable, and funds placed in it are protected against claims made by the company's creditors. Even though funds in this trust are not in the employee's possession, they are deemed by the Internal Revenue Service to have been constructively received by the employee. The company is allowed to take an income tax deduction for the funds it contributed to the trust, even though these funds have not been distributed to the employee while he or she has current taxable income. At the time funds from the trust are actually distributed, the employee is taxed only to the extent that these distributions are from earnings of the trust or from current trust income, which will allow the employee to pay taxes owed as the result of the company's contributions to the trust. The employer is not taxed on the trust income: the employee pays all taxes on this income. For example, assume that the company is in the 34% tax bracket and contributed $40,000 to the trust on behalf of John Employee, who is in the 28% tax bracket. The result is that John Employee will have an $11,200 tax liability ($40,000 x 28%) and the company will incur a $13,600 tax deduction ($40,000 x 34%). In order that John Employee will have the necessary funds to pay the taxes owed, the company usually will bonus him the $11,200 required, which of course is tax deductible as a business expense for the company.
Popular Insurance Terms
Accident policy that covers a traveler for a single trip on an airplane or other common carrier. The name comes from its origin as part of the ticket or ticket stub, but these policies are ...
Type of guaranteed investment contract in which funds for the contract are placed in the insurance company's separate account. ...
Representative of an insured, not of an insurance company. Acts of a broker are not the responsibility of the company, and notice given by an insured to a broker is not the same as notice ...
Record a debit (or other) agent makes for premiums collected, time period for which the policy is paid, and the week of collection or date the premium was paid. In essence, the debit agent, ...
Vehicle for the deferring of unneeded current income for a later date, such as retirement, providing the following benefits: There is no tax on earnings of the plan until distributed; ...
Retirement arrangement in which contributions are divided between allocated (insured) and unallocated funding instruments (an uninsured plan). It seeks to combine the advantages of ...
Holding of property, or otherwise acting on behalf of another in trust. The fiduciary must exercise due care in safeguarding property left under personal care, custody, and control. ...
Program of health care designed for the prevention and/or reduction of illnesses by providing such services as regular physical examinations. This care is in opposition to curative care, ...
Same as term Annual Policy: contract remaining in force for up to 12 months unless canceled earlier. After 12 months the policy can either be renewed or not renewed by the insurance company ...
Have a question or comment?
We're here to help.