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Educational Objective
II.G.3. Be aware that life insurance can be held within a qualified plan under very limited circumstances.
An employer-sponsored qualified retirement plan is a plan approved by the IRS, which then grants both the employer and the employees favorable tax benefits — including deductible contributions and tax-deferred growth.
Qualified plans share the following characteristics:
Designed for the exclusive benefit of the employees and their beneficiaries
Formally written and communicated to the employees
Use a benefit or contribution formula that does not discriminate in favor of the prohibited group — officers, stockholders, or highly paid employees
Are not geared exclusively to the prohibited group
Are permanent
Are approved by the IRS
Have a vesting requirement
Know This
Qualified plans have tax advantages.
Life insurance can be held within a qualified plan only under very limited circumstances — generally within certain profit-sharing plans, defined contribution plans, and defined benefit plans.
Key Takeaways
A qualified retirement plan is IRS-approved and grants both employer and employees favorable tax treatment, including deductible contributions and tax-deferred growth
Qualified plans must be permanent, formally written, nondiscriminatory toward the prohibited group (officers, stockholders, highly paid employees), and include a vesting requirement
Life insurance may be held inside a qualified plan only in limited circumstances, such as certain profit-sharing, defined contribution, or defined benefit plans