how your split dollar plan can affect your retirement

How Your Split Dollar Plan Can Affect Your Retirement

Are you aware most of the risk in your loan regime split dollar plan is during your retirement years, which may be too late to do anything about it?

Have you considered investing in split-dollar life insurance as a viable option for your future? If how your split dollar plan can affect your retirementso, it’s important that you understand to risk you may be undertaking, just when you’re ready to slow down and stop working. While split-dollar may seem attractive initially, the real risk comes later on down the line. 

A split-dollar plan’s risk is “post-retirement”, which makes it even more difficult to relax, unwind, and not think about finances for a while. This is exactly why we feel the need to help you make an informed decision to craft a future plan that works for you. Let’s dive a little deeper into split-dollar plans, and what they may mean for you. 

A typical pitch from providers to credit unions on loan regime split dollar sounds like this:

  • Tax-free retirement income for the executive.
  • Performing asset for the credit union. 
  • Income-generating for the credit union.  No accrued liability.
  • Credit union repaid at death, so full cost recovery.

Sounds fantastic, sign me up!   Right? But, wait…

  • What is the process to access your tax-free retirement income?
  • Can the board of directors say no to you accessing your tax-free money?
  • What is the probability the board members at the time of your request for your tax-free money are the same board members when you retired?
  • What if the life insurance policy performs poorly, 5, 10- and 20-years post-retirement?  What do you do?
  • What if the credit union is acquired during your retirement?  What can happen to your tax-free money?
  • Would the credit union invest in a zero-coupon 40-year bond?  Well, you just did….sort of.  The credit union is repaid at death, which realistically, can be 30 to 40 years from today.

What if we could “quantitatively” show you how a properly structured 457(f) plan can still be money-making for the credit union and provide the same after-tax money as your split-dollar plan?

A 457(f) plan is a nonqualified deferred compensation arrangement, which gives the tax-exempt employer an opportunity to supplement the retirement income of its management group or highly compensated employees, by contributing to a plan that will be paid to the executive at retirement. 

For the credit union:

  • The 457(f) plan can be structured to be income generating for the credit union. 
  • No need to wait until executives death to repurpose the cash outlay funding the plan.

For the executive:

  • The same after-tax benefit as you would receive from the split-dollar plan, without the risks.
  • No need to ask your prior employer and people you may not even know, to get your retirement income.

Are you interested in learning more about structuring a plan that benefits you? Contact the team at Newcleus Credit Union Advisors to learn more