What is a 412e3?

Answer 1

A 412(e)(3) Fully Insured Plan, formerly known as 412(i) Fully Insured Plan, referred to in the IRS regulations as an "insurance contract plan," is a special type of defined benefit plan. It is called a "fully insured" plan because the benefits are guaranteed by an insurance company. A 412(e)(3) Plan is not subject to many of the requirements that have made traditional defined benefit plans unpopular over the years. These plans have become even more popular lately because changes in the tax laws over the last few years have made them more attractive. Since the investments in these plans are based on fixed accounts (fixed annuities and life insurance) with retirement benefits guaranteed, they are getting a second look now that there is so much volatility in the equity markets.

Answer 2

A 412e3 is a tax-advantaged retirement savings plan specifically designed for employees of nonprofit organizations, including religious institutions and schools. It allows eligible employees to contribute a portion of their pre-tax income to a retirement account. Contributions to a 412e3 grow tax-free until they are withdrawn in retirement.