Executive Bonus Plans
A powerful, flexible way to reward key talent — while building long-term financial strength.
An Executive Bonus Plan (also called a Section 162 Plan) is one of the most misunderstood — and underused — tools in the entire business world. Most owners never hear about it, and those who do rarely understand its full power.
Here’s what every business owner should know.
What Most Business Owners Don’t Know
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It’s 100% a tax-deductible business expense when structured correctly.
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The executive owns the policy, not the company — making it a powerful retention tool.
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The plan creates instant loyalty because the benefit is tied to their long-term financial security.
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There are no contribution limits the way there are in 401(k)s, SEPs, SIMPLE plans, or deferred comp.
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You can add golden handcuffs so the executive only keeps part of the benefit if they leave early.
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The cash value inside the policy grows tax-deferred, and can be accessed tax-free.
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The plan works even for very small businesses with just one key person.
Most owners think this is a “big corporation” strategy — but it’s one of the easiest advanced planning tools for small and mid-sized companies.
What Is an Executive Bonus Plan?
An Executive Bonus Plan is a company-funded life insurance strategy designed to:
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Reward key employees
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Retain top talent
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Create tax-advantaged cash value for long-term planning
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Strengthen stability and leadership continuity
The company pays the premiums on a cash-value life insurance policy (such as an IUL or Whole Life).
The executive owns the policy, enjoys the benefits, and feels deeply valued by the employer.
Who Qualifies?
Executive Bonus Plans are ideal for:
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Owners
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Partners
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Chief-level executives
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Top sales producers
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Doctors / attorneys in private practices
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Key managers essential to company operations
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Anyone whose departure would significantly harm the business
You can offer the plan to one person or to a selected group — the company chooses.
The Big Advantages (Most Never Hear About)
1. Immediate Tax Deductions for the Company
Your premium payments can be deducted as compensation — making this a powerful tax-strategy.
2. The Executive Owns the Policy
This makes the benefit meaningful, personal, and highly valued.
3. Tax-Free Access to Cash Value
Executives can borrow against the policy later in life for:
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Retirement income
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College funding
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Emergencies
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New home purchase
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Wealth building
All without paying taxes when structured correctly.
4. Zero IRS Contribution Limits
Unlike traditional retirement plans:
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No caps
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No phase-outs
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No income restrictions
You can fund as much as makes sense.
5. Golden Handcuffs (Optional)
Add a Restricted Endorsement Bonus Arrangement (REBA) to ensure:
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If the executive leaves early → they only keep a portion
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If they stay and help grow the company → they receive the full benefit
This creates powerful retention and loyalty.
6. Easy to Implement — and Easy to Terminate
No complex ERISA rules.
No annual filings.
No government reporting.
Just a simple, clean agreement.
Why Companies Use This Strategy
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To retain top talent in a competitive market
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To reward performance without giving away equity
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To create continuity and stability during growth
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To build a sense of partnership and long-term alignment
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To reinforce a culture of reward, security, and loyalty
This isn’t just a benefit — it’s a strategic advantage.
What Happens When the Executive Dies?
Because the executive owns the policy, their family receives a tax-free death benefit that the business didn’t pay estate taxes on.
Optional: The company may receive a repayment of premiums or a portion of the death benefit through a split-dollar structure.
Is an Executive Bonus Plan Right for Your Company?
This plan is ideal if you want:
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A tax-deductible way to reward key people
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A retention tool that builds loyalty
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A benefit that feels personal, meaningful, and long-term
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A simple, flexible strategy with big financial impact
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A solution without IRS complexity or annual filings
If you’re looking for a way to keep your best people while strengthening your financial foundation, this may be your most powerful next step.
