What Is a Premium Pre-Tax Conversion Plan?

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A premium pre-tax conversion plan relates to group insurance offered in an employer sponsored employee benefit package. Find out about a premium pre-tax conversion plan with help from the president of The Stratford Financial Group, Inc. in this free video clip.

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Video Transcript

Hello, I'm Jeffrey Ingalls, President of Stratford Financial Group and Stratford Employ Services in Wayne, New Jersey. And right now, we're going to discuss what is a premium pre-tax conversion plan. A premium pre-tax conversion plan relates to group insurance offered in an employer sponsored employee benefit package. From the employer perspective, this allows them to deduct insurance premiums in the same fashion as a business expense. Pass through corporations should beware, owners and partners and their dependents in an S corporation, LLC, partnership or sole proprietorship cannot participate in the Section 125 or premium pre-tax conversion plan. From the employee perspective, a premium pre-tax conversion plan allows them to make their contributions in a pre-tax basis. What this means is their contributions are made from their gross pay as oppose to their net pay and are therefore pre-taxed; so, there's no need to further deduct them on one's taxed return. This program is also referred to commonly as a Section 125 or premium only plan. And if I can leave you with two tips; from the employer's perspective, it's important for employers to obtain a formal plan document. It's also important to perform annual discrimination testing to make sure that your premium pre-tax conversion plan is in compliance. My name is Jeffrey Ingalls. I'm the President of Stratford Financial Group and Stratford Employer Services in Wayne, New Jersey. We can be found online at www.stratfordlink.com and you just watched what is a premium pre-tax conversion plan. Thank you.

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