Not exactly a tax question, but an accountant recently proposed something to me that seems risky.
Let's say Joe owns a C corp and Joe has not reached full retirement age. Joe is tired of working and plans to slow down his work schedule. Joe has hired someone to oversee the day-day-to matters that he used to attend to.
Joe will be paid a portion of his former salary (say, $35,000) for what he continues to do. Joe also plans to start receiving social security benefits.
The accoutant has proposed that Joe contribute all or some portion of the $35,000/yr. salary to a nonqualified deferred comp plan so that Joe will receive retirement pay instead of wages. This, according to the CPA, will prevent a reduction in Joe's social security benefits.
The kicker is this: no one actually intends for the money to be deferred. If the money is deferred, then it will be only for a few months...certainly not for a year or more.
So, the proposal is to essentially wash the $35,000 (or, more likely, just a portion) through a nonqualified deferred comp plan and pay it out in the same year it was contributed. Again, the goal is simply to make certain that social security payments aren't reduced. There is no motivation to defer tax.
Any thoughts?
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