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TAX-ADVANTAGED PLANS

Tax-advantaged plans are plans that utilize Section 125 of the Internal Revenue Code (IRC) allowing employees to defer cash compensation on a pre-tax basis to be used for allowable expenses for specific plans.  These plans include:

 



*   Health Savings Accounts are already tax-advantaged but may
     be funded through a Section 125 Plan
Many people lump in as flex plans, FSAs, cafeteria plans, etc.  We find that there is a lot of confusion when it comes to these plans and many are not operated in compliance with the various Federal regulatory agencies.  We also believe these plans are typically presented in a manner limiting the flexibility of these plans. 


Common Compliance Problems
  •    No Section 125 Plan Document

  •    No Summary Plan Description (SPD)

  •    Owners of S Corps and LLCs having premium contributions deducted
         pre-tax (owners of  S Corps and LLCs cannot participate in a Section 125)

  •    Owners of an S Corp or LLC receiving tax-free company contributions
         (Owners need to characterize premiums paid by the company towards
         benefits as imputed income and pay taxes on these payments)

  •    A POP Election Form needs to be completed by each participant at
         the beginning of each plan year that the employee contribution changes

  •    If the POP is elected, the pre-tax payroll deduction cannot be stopped
         before the end of the plan year unless there is a “qualifying Event.”

For more information, please contact Bridgeport Benefit Advisors.
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The material on this page is intended as general descriptions of the concepts presented.  It is for educational purposes only and it not intended to provide specific financial or tax advice.  These descriptions cannot take into account your specific conditions and situation including the data required for underwriting purposes, financial circumstances, risk tolerance, and other factors.