419(e) Welfare Benefit Plans
 
 

These are becoming a more used type of plan as it is the only type of plan that allows for tax-deductible contributions, tax-deferred growth, and tax-free distributions.  If something sounds this good, though, there has to be a catch.  The catch is for distributions to be tax-free, they must be for post-retirement medical benefits.

So why should I do this plan?  The answer is simple-we're living longer and medical costs continue to grow.  You could pay for these expenses by taking money out of your 401(k) or other type of retirement plan, but that distribution is taxable to you, so if your doctor visit costs $100, you'd need to take out about $170 (To cover the tax due on the $100, plus the tax due on that extra amount you took out to cover the original tax!).

The government has estimated that 25% of a retiree's retirement expenses will be for medical expenses.  If that is the case, and you have the opportunity to fund these expenses with tax-free dollars, why wouldn't you do this (unless of course you like overpaying taxes, and my goal is to help you eliminate unnecessary taxes).

For those CPA's out there reading this information, this is not a 419(a)(f)(6) multi-employer plan.  A 419(e) plan is not reportable event according to recent IRS rulings.  By picking a prudent TPA to administer the plan, a company will be in compliance with all IRS regulations of these plans.