With such busy lives, manydoctors are dependent ontheir financial planner. Butputting trust in the wrong person or inthe wrong advice can lead to severeconsequences that will fall into yourlap—not your advisor's. Certain taxdeduction plans in particular fall inthat realm of caution. Currently, theIRS has tax forces that audit participantsin 412(i) defined-benefit pensionplan and participants in 419 plans.You may be utilizing one of these planswithout knowing it. If the plan isfound to be what the IRS considers anabusive tax shelter, your participationin the plan may be criminal.
These two plans have more than onething in common. Both plans are usuallysold by insurance agents, financialplanners, or even your own accountant.They are also usually funded withsome form of insurance or annuityproduct—most importantly, both plansare purportedly tax deductible. A 419plan is a way for employers to providewelfare benefits to key long-termemployees and employee-owners, and a412(i) plan is also referred to as a fullyinsured retirement plan. While many ofthese plans are legit, they should beused with caution because some may beillegal. Also, keep in mind that they areon the IRS' radar.
An example of a lesson learned waswhen a particular doctor requestedadvice about one of these types ofplans. Upon investigation, it was discoveredthat the plan administratorshad withdrawn much of the moneyfrom the plan for themselves, and thedoctor lost the money. The JusticeDepartment prosecuted, and the administratorsof the plan pleaded guilty.In this situation, the plan was sold tothe physician by his accountantthrough a reputable insurance company.Sometimes options suggested bysomeone reliable still need to be thoroughlyresearched first.
Physicians often wonder whom theycan trust and how they will knowwhom to believe. By entering the nameof the person that you want to do businesswith into a search engine likeGoogle, you may come across valuableinformation. Don't simply go on theirWeb site, though, because anyone canpay to have a nice site that appearslegitimate. It is important to exercisedue diligence when researching someoneinvolved in your financial planning.Physicians who recentlytook part in a plan called Xylon haveundergone IRS audits that lasted foryears. There are many ways to obtaintax deductions. You just have to becareful whom you do business with.
Lance Wallach, CLU, ChFC, CIMC, speaks atmore than 70 conventions a year and writesfor over 50 publications. For more information,call 516-938-5007 or visit www.vebaplan.com. The information provided herein isnot intended as legal, accounting, financial, or any type ofadvice for any specific individual or other entity. Contact anappropriate professional for any such advice.