Captive Insurance [Can you pay yourself a salary and open a 401(k)?]

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Hederal
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Joined: Thu Apr 27, 2017 8:18 am

Captive Insurance [Can you pay yourself a salary and open a 401(k)?]

Post by Hederal »

Does anyone know if you can pay yourself a salary and open a 401(k) if you are president of your own captive insurance company?
123
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Re: Captive Insurance

Post by 123 »

If you are paid with W-2 earnings your employer would have to hold the plan.

If you are a self-employed individual who files a Schedule C (and SE) on your federal tax return you could likely have a Solo 401K plan. Solo 401K plans can be good if you have no employees and will not have any employees. The definition of employee would be as determined under IRS rules. You can't avoid someone being an employee merely by paying them via 1099 as a contractor, it is IRS rules that control the situation.
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terran
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Re: Captive Insurance

Post by terran »

I had to look up what a captive insurance company (it's a formalized way of self insuring for commercial insurance). Does that indicate that you're the owner of the company that this captive insurance company provides insurance for? If so, you'll have controlled group issues such that all the businesses you own will be considered together for 401(k) compliance tests. You're pretty much stuck with whatever retirement plan your primary business provides to all employees.
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LadyGeek
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Re: Captive Insurance [Can you pay yourself a salary and open a 401(k)?]

Post by LadyGeek »

This thread is now in the Personal Finance (Not Investing) forum (insurance). I also retitled the thread for clarity.
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vtjon02
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Re: Captive Insurance [Can you pay yourself a salary and open a 401(k)?]

Post by vtjon02 »

You should speak to the captive manager and attorney and then they will have to approach the regulators at the state of domicile. Captives are regulated licensed insurance companies and depending on the domicile this may or may not be allowed. It is certainly not prudent to do this if the captive is filing taxes as an insurance company.

When I hear individuals speaking about captive insurance it makes me queasy. Captives are great for corporations and are a legitimate tool for insuring risks. But in the last ten+ years they have been abused as wealth management strategies for the wealthy. Some investment advisors are still pushing these and people have no idea what they are getting into. Based on your comments I'd guess that is whats going on here. The IRS has disallowed many of these micro captive transactions as illegitimate and instituted very harsh penalties.

I no longer work in this industry but have close ties to it. If you PM me with particulars I can give you more information, but I'd strongly suggest you rethink this and consider a change in your service providers.
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