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American Taxpayer Relief Act of 2012

The American Taxpayer Relief Act of 2012 (ATRA 2012) implements numerous new tax laws. The new law impacts estate and personal income tax provisions, as well as plan participants in their employers nonqualified deferred compensation (NQDC) plans.

Implications

Estate Planning

ATRA 2012 provided clarification around the estate tax exemptions. In 2015, it increases the lifetime gift exemptions to the following to $5.43 million (Indexed) per individual and $10.86 million (Indexed) per-couple.

Nonqualified Deferred Compensation

Although ATRA 2012 has no direct impact on nonqualified deferred compensation (NQDC) regulations; it does have tax implications for higher-income employees. 

Opportunities

Estate Planning

  • Calculate your clients’ estate tax exposure
    Help clients and their advisors estimate estate tax liability under various growth rate and longevity scenarios. Start with the Estate Tax Calculator (BB10045). Go to Legacy & Estate Planning for more information and details to approach clients and prospects.
  • Reviewing Existing Plans Sales Idea (BB10410)
    Explores how ATRA 2012 can be used as a reason to review your client's existing estate plan and recommend any updates.
    View (PDF) • Order

Nonqualified Deferred Compensation
In light of ATRA 2012, it’s important for employers to consider the increased value that NQDC plans may offer their key employees. This may provide opportunities to talk to organizations that have an existing plan or are considering the addition of this benefit. The following are some implications to NQDC participants from the legislation:

  1. Higher marginal tax rates and managing tax thresholds encourage deferrals into NQDC plans.
  2. NQDC plan deferrals may reduce or eliminate the tax impact for participants close to certain income thresholds.
  3. Higher marginal tax rates make pre-tax deferrals more attractive vs. after-tax investing.
  4. Reduced uncertainty over the future taxation of NQDC plan distributions.

Materials

Nonqualified Deferred Compensation

  • Tax Legislative NQDC Email Template (LF346)
    Customize with your specific contact information, and then send the Plan Sponsor Summary to your clients.
    Get Email (OFT)

Important Information

While this communication may be used to promote or market a transaction or an idea that is discussed in the publication, it is intended to provide general information about the subject matter covered and is provided with the understanding that none of the member companies of The Principal are rendering legal, accounting, or tax advice. It is not a marketed opinion and may not be used to avoid penalties under the Internal Revenue Code. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements.

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