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401k
A pension plan can be adopted by any taxpayer with employees. These plans are "trusts" under state law, and the Internal Revenue Code recognizes various "types". Pensions; profit sharing; pension and profit sharing;ESOP's; SEP's; IRA's are some of the "types" that can be adopted under the tax law. All of them have one thing in common, an employer can make a contribution of money to the plan based on a percentage of each "qualifying" employee's wages. Participation in the plan is almost always optional at the choice and discretion of the employee. Section 401(k) allows the employee to make non deductible contribution of his own funds in a lesser amount as well to his "account". The maintainence and investment of the money is independent of the plan. Typically the money is invested by and held on deposit at a bank, brokerage house, or insurance company in large companies. These "agents/trustees" usually direct the investment of the money. However, certain larger and older companies, like US Steel, did not historically provide enough funding to adeqately provide for all the retiring employees. Hence, people have said that the company "raided" the plan. Significant changes in funding requirments have not allowed this in newer companies, although, international employees are poorly protected. Some companies use third party managers, such as financial planners and CPA's to direct the investments, but the funds or securities are almost always held at a brokerage firm. Most plans require some period of service (employment) before "vesting" begins. It is the "vested" balance that can be rolled over into another "qualifying" plan, such as an IRA or SEP or another "qualified" plan.
Since these are basically trust agreements that meet IRS guidelines, any plan document will do. Banks, brokers, and insurance companies do these agreements en masse and therefore get "determiation" letters from the IRS which tell them and you in advance that the "qualify", however, such "determination" letters are not truly necessary, just defensive in nature when selling large blocks of these like banks do. Creating a plan with your own document or with one purchased from a bank or broker makes it easy to roll over the money or securities. These plans can easily be designated as self directed and managed. Since plans do not pay tax on earnings and they are trusts they are ideal places to retain funds. The Department of Labor publishes a list of qualified investments but any thing that does not constitute a trade or business is acceptable. Recently, they have allowed interests in LLC's and "S" corps to be included as investments, therby radically increasing your opportunities. For example, Should you choose to acquire a real estate investment property in an LLC owned by your non-taxable/plan trust you can use your non taxed money to acquire and rehab it. The gains on sale flow back non taxed as well. Since it is a trust and LLC you have automatically achieved a great deal of creditor protection and anonominity as well. Better yet, non of this ends up on your tax return.
To me, the pension plan is better than "hiding assets offshore", developing marginal identity theories, or evading taxes. These things pay no tax completely legally.
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