Are you a physician unable tocontribute to your retirementplan because of overfunding?Would you like to make large, tax-deductiblecontributions to a plan andreceive tax-free distributions in thefuture? What about freeing your estatefrom taxes and protecting your assetsfrom creditors? One way to accomplishthis is with a Voluntary Employees BeneficiaryAssociation (VEBA). A VEBA isan employee benefit plan that is set upas a trust with a bank as a trustee.Allowing large, flexible, tax-deductiblecontributions, almost any business canestablish a VEBA for its employees,including physician-owners. Althoughthere are trusts that look like VEBAs,they don't comply with guidelines. Whatdifferentiates a regular trust from aVEBA is a tax-exemption letter from theIRS under Section 501(c)(9), whichmany sponsors do not file due to costs.
Because it is a tax-exempt organization,contributions are tax-deductibleand funds can grow tax-deferred. AVEBA also allows for larger tax-deductiblecontributions than a 401(k)plan because it is not subject to strictpension plan guidelines. Best of all,physician-owners can provide both aretirement plan and a VEBA.
Typically, VEBAs provide for thepayment of life insurance, accidentinsurance, sickness, and other benefitsto its members, dependents, and beneficiaries.A VEBA can be designed so thatthe benefits paid are not subject toestate taxes because participants haveno incidents of ownership in the assets,including life insurance contracts heldunder it. Assets then can pass to thephysician's family free of income, estate,and gift taxes. Physician-members alsoenjoy a great deal of latitude in choosingtheir plan benefits. In addition,assets are protected from the claims ofcreditors, and a VEBA can allow a buy/sell agreement to be tax-deductible.
VEBAs are subject to the EmployeeRetirement Income Security Act of1974, but not to the rules governingqualified plans, meaning that VEBA distributionscan be made prior to age591/2 without an early distributionpenalty. In addition, VEBA distributionsare not required to begin by the time theparticipant is age 701/2. There are somespecific restrictions regarding VEBAs.Although they have been in existencesince 1928, VEBAs are not well knownor understood. For more information,visit www.vebaplan.com.
NY, speaks at more than 70 national conventions
annually and writes for more than 50
national publications. He speaks and writes
extensively about VEBAs, pension plans, and
tax reduction strategies. He welcomes questions or comments
at 516-938-5007. The information provided herein
is not intended as legal, accounting, financial, or any type of
advice for any specific individual or other entity. You should
contact an appropriate professional for any such advice.
Lance Wallach, CLU, ChFC, CIMC