Help with a Key Man policy

[nstok22]

I've got a small business owner interested in a rop term- if the policy is written on him and paid for by the business the premiums are tax deductible from what I understand, my question is at the end of the term does the ROP amount come back to the owner tax free?

Thanks!!

 

[DHK]

Not deductible, unless you want the proceeds to be taxable.

 

[nstok22]

Thank you!

 

[Markthebroker]

Not deductible, unless you want the proceeds to be taxable.

View attachment 5251

Is it proceeds if he's just getting his premiums back?

 

[bill3173]

Yes because you didn't pay taxes on the premiums, so you pay ordinary income tax when they're returned to you.

 

[scagnt83]

The ROP portion is received tax-free assuming the premium was not deducted.

If the business did not deduct premiums, it means the premiums were already included in taxable income.

But as DHK posted, if Premiums are deducted, the DB will be taxable.

 

[The Benefit Coach]

Not deductible at all.

I think you guys are confusing this with the way the IRS handles deductions for D.I.