Get Rabbi Trust

Which one of the following is a tax consequence of a rabbi trust? The trust assets may be available for general use by the employer. Rabbi trusts are deferred compensation plans that do not need to meet requirements imposed by the IRS.

How does a Rabbi Trust Work? The Rabbi trust does not provide any tax deduction to the employer until the year in which the employee receives the benefits from the trust. At that time, the employer can take a deduction against taxable income for the amount of the distribution of trust funds to the employee.

The first IRS letter approving this sort of trust involved a Rabbi, hence the name Rabbi Trust. The employer's contribution to the trust is tax-deductible, and the employee does not have to pay tax on that sum until he/she receives it from the trust.

Rabbi Trust Taxation For example, if an employee receives an annual income of $100,000 and his or her employer makes monthly contributions of $1,000 to the staff member's rabbi trust, their taxable income is $100,000; they do not have to pay tax on the $12,000 of contribution payments.

The trustee of the trust must be an independent third party that may be granted corporate trustee powers under state law, such as a bank trust department or other similar party.

Employer stock held by the rabbi trust is classified as equity in a manner similar to treasury stock, and other assets held in the trust should be accounted for in ance with generally accepted accounting principles for the particular asset.

The Rabbi trust does not provide any tax deduction to the employer until the year in which the employee receives the benefits from the trust. At that time, the employer can take a deduction against taxable income for the amount of the distribution of trust funds to the employee.

How Do You Establish a Rabbi Trust? You as settler or grantor establish a rabbi trust by entering into a trust agreement with a trustee (usually a bank or trust company). The trustee then holds the NQDC plan contributions and investment earnings. A single rabbi trust can benefit more than one employee.