The Retained Earnings Trifecta

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Business owners work hard to find success. Their goal is to grow and prosper. They’re in business to generate a profit and they would like to use those profits to provide personal benefits for themselves and their key employees.

One way that business owners can do this is by leveraging business dollars to buy life insurance on his/her life and the life of key employees. The premium paid will reduce their business cash account, and as the cash value of the life insurance grows it becomes an asset on the balance sheet. This process offsets a business owners retained earnings.

If the insured dies, the death benefit received is income tax free (assuming the requirements of IRC Section 101(j) are met) and can be used to help the business survive the death of a key person. The cash value, if any, can be used in the event the key person voluntarily leaves or becomes disabled.

Note that withdrawing the cash value will cause the policy to lapse, but it is assumed that the death benefit is no longer needed at this point. Earnings in the policy would be taxable. Surrender charges may reduce the available cash value during the early years of the policy.

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The ideal candidate for the Retained Earnings Trifecta is:

  • a C Corporation with excess retained earnings.
  • a business that requires life insurance coverage on the owner.
  • a business owner who wants additional personal insurance and retirement accumulations.

The Retained Earnings Trifecta shows one possible way to solve three of the most vexing challenges faced by a business owner:

  • Paying more tax and penalties than may be necessary
  • Providing insurance funding to the business to cover a host of problems, including the loss of a key person
  • Having tax efficient retirement accumulations and income tax free death benefit for yourself and your family.

Learn the basic concept of the Retained Earnings Trifecta.

This Power Point provides a detailed review of the technique and a case study.

Point-of-sale materials have been developed to help you present the Retained Earnings Concept to your business owner prospects and clients.

If you have additional questions or need further support, please contact the Advanced Markets Team.

National Life Group Agents

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Learn all about Retained Earnings through this video program.

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The companies of National Life Group® and their representatives do not offer tax or legal advice. For advice concerning your own situation, please consult with your appropriate professional advisor.

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