- The Story
Mark*, a successful business owner, wanted to save for retirement while keeping his corporate funds available for reinvestment. With an annual investment capacity of $250,000, he sought a tax-efficient way to accumulate wealth inside his corporation and extract funds for retirement without excessive taxation. Traditional corporate investments were taxed annually, and withdrawing dividends for retirement would have triggered high personal tax rates. Mark needed a structured solution that preserved liquidity and maximized tax efficiency.
Developing a corporate retirement strategy
Stone Owl implemented a strategic plan that integrated corporate-owned life insurance with borrowing to optimize Mark’s retirement income. The key elements included:
Mark’s corporation funded a high cash value whole life insurance policy with $250,000 per year in premiums. The policy’s cash value grew tax-sheltered, creating a corporate reserve for retirement.
Instead of waiting for retirement, Mark’s corporation borrowed against the policy’s cash value, preserving liquidity for business growth and investments. The corporation paid loan interest, which was tax-deductible, further improving tax efficiency.
Upon retirement, Mark’s corporation used tax-advantaged withdrawals from corporate surplus and insurance cash value to fund dividends. The insurance policy continued to grow, ensuring a long-term tax-efficient capital pool remained within the corporation.
Upon Mark’s passing, the life insurance payout was received tax-free by the corporation. The CDA allowed his heirs to withdraw funds tax-free, ensuring efficient wealth transfer. Any outstanding corporate loans were settled, ensuring a clean and optimized estate transfer.
A closer look at liquidity and wealth preservation
By integrating corporate-owned insurance with strategic borrowing, Mark successfully maintained corporate liquidity while securing tax-efficient retirement income. His structured approach ensured that corporate funds remained invested and available for business opportunities. Additionally, his corporation paid lower taxes compared to traditional taxable investments, providing a significant financial advantage. The retirement dividends were carefully structured to minimize personal tax exposure, ensuring that Mark could enjoy a steady income stream without unnecessary tax burdens. Furthermore, his estate passed on significant wealth tax-free through the Capital Dividend Account (CDA), securing financial stability for his heirs.
The power of structured corporate retirement plan
With the guidance of Stone Owl, Mark optimized his retirement income while keeping his corporate cash flow flexible. By combining corporate borrowing and life insurance, he successfully saved for retirement tax-efficiently while utilizing corporate funds for investments and maintaining liquidity. This structured approach allowed him to extract tax-advantaged dividends for personal income, ensuring financial security throughout retirement. Additionally, the corporate Capital Dividend Account enabled him to pass on wealth tax-free to his heirs, preserving his legacy.
Today, Mark stands as an example of how business owners can structure their corporate finances to maximize retirement income while preserving financial flexibility. His case highlights the power of proactive planning in securing long-term wealth.
* We take our clients’ confidentiality seriously. While we’ve changed their names, the results are real.
