Why should a business adopt a VEBA?
A VEBA may be one of the last, best, legal tax shelters available. A business is allowed a current deduction for its contributions to the plan equivalent to the reasonable cost of funding VEBA benefits; in most cases, the employee pays no tax on money contributed for his or her benefit until benefits are received; cash value within insurance policies used to fund benefits accumulates tax deferred and are protected from creditors’ claims; and distributions from the plan may be afforded favorable tax treatment. VEBA life benefits distributed by a VEBA can escape both income and estate taxation. Distributions can be taken without from the plan before age 59 1/2 or after 70 1/2 with no penalties. Contributions are flexible and often depend on the amount of available income the employer wants to shelter in a given year. This allows large contributions in peak years and possibly none in others. Pension/profit sharing plan limitations do not apply. NOTE: A VEBA is not a retirement or deferred
