Restricted property trust is being used by a number of successful business owners in an effort to reduce their income taxes and at the same time, to grow their assets. Being able to make Defer Taxes on Growth, Before Tax Contributions as well as Access Tax-Advantaged Distribution has made Restricted Property Trust a remarkable alternative to employer sponsored plans.
On the other hand, you need to know that this type of trust is not for everyone. The initial funding needed for RPT or Restricted Property Trust is at least 50,000 dollars per year on the next five years. And you have to ensure that you meet the yearly contribution because it will forfeit the plan assets to predetermined charity of the choice of owner. If you feel concerned about the minimum requirement being asked, then it may not be the best option for you.
Basically, RPT is an employer sponsored program mostly for business owners. This could be established by Partnership, LLC, C Corporation or S Corporation. However, a sole proprietorship can’t establish such. Providing tax-favored contributions, non taxable income as well as long term accumulation to business owners is the end goal of RPT. RPT may deliver better results when compared to alternate investments earning.
You need to know at the same time that RPT is not qualified plan and it is due to this why the contributions for RPT have no impact on contributions to the qualified plans such as 401k, Profit Sharing Plan, Defined Benefit Plan, SEP and so forth.
Not like other qualified plans, RPT might be utilized exclusively in benefiting owners of a company. Not only that, participants have the ability of choosing a contribution level that they are comfortable with. The yearly contributions to RPT by business will be deductible to employer. There is a small chance of contributions included in current taxable income of the participant.
Not being able to make yearly contributions will lead in lapsing of life insurance policy and at the same time, the forfeiture of policy cash values to preselected charity. As long as the funding period has been satisfied and the distribution of policy to participant has taken place, then a small percentage of cash surrendered value would become taxable. As for the taxable portion, it could be paid from the policy cash values. In order to recognize any corporate deduction in specific fiscal or calendar year, then it becomes the responsibility of the member to fund Restricted Property Trust by the yearend of the businesses.
As for candidates of RPT, it includes medical groups, high profit partnerships and private companies or executives with more than 500k dollars annual earning.