The AGE Deal: 5 Questions and a Comment

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FL Broker's picture
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Joined: 2007-06-02

(I posted this item late Friday evening on the 15th page of the "AGE's Offer" thread, but thought it might gain a bit more visibility and prove more helpful as a stand-alone topic as informed posters respond.)
Five Questions and a Comment:
1.  At what point do funds received from the AGE retention everything-up-front loan become taxable -- all at once or one-sixth per year for six years (or "never" because, and this could just be semantics, it is a loan and not compensation)?
2.  If funds are received in 2007 and if they will be taxable, will the amount be factored into the profit sharing calculation?
3.  If the funds received are deemed taxable, can salary deferral be elected, i.e., divert a percentage of the funds into the 401(k)?
4.  Did anyone else see on the "Important Information" page the reference to "monthly bonus" under the loan bonus (Option #1) arrangement?  What's that all about?
5.  If one would accept the lump sum, then leave in, say, six months, what percentage of the lump sum would need to be repaid?  Five-sixths -- meaning the first sixth vests immediately?  Eleven-twelfths -- meaning everything is prorated based on the 66 remaining months out of the 72-month (six year) period?
Comment:  There needs to be absolute clarity on the structure and 6-year (or 10-year) non-reduction characteristics of the pay grid (including the bonus structure and 401(k) / profit-sharing plan) BEFORE we can be expected, fairly, to sign anything.  If they want to dangle a carrot, we need to be assured it's actually a carrot...

troll's picture
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Joined: 2004-11-29

Regarding #1-the funds become taxable when you have 'constructive receipt'.  That is-when you have the ability to withdraw and use them without any constraints nor without any conditions in place that could result in your forfeiture of the funds.

AGE_Inside_Info's picture
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Joined: 2007-06-03

i.e. - lump sum being taken all at once?

troll's picture
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Joined: 2004-11-29

AGE_Inside_Info wrote:i.e. - lump sum being taken all at once?Put simply-if you can spend it, or take it out and put it into a bank account, it's probably taxable.

cmein1999's picture
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Joined: 2007-06-07

I've visited with a CPA buddy and he said it is taxable once your obligation has expired ie 1/6th each year. May even apply to the lump sum because if you leave it is prorated for the time.

Reggin's picture
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Joined: 2005-09-03

cmein1999 wrote: I've visited with a CPA buddy and he said it is
taxable once your obligation has expired ie 1/6th each year. May even apply
to the lump sum because if you leave it is prorated for the time.

Ding ding ding we have a winner! Everyone else you lose.

Broker24's picture
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Joined: 2006-10-12

On loans, when those loans are forgiven is when they are considered
income.

troll's picture
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Joined: 2004-11-29

Reggin wrote: cmein1999 wrote: I've visited with a CPA buddy and he said it is
taxable once your obligation has expired ie 1/6th each year. May even apply
to the lump sum because if you leave it is prorated for the time.

Ding ding ding we have a winner! Everyone else you lose.I apologize, didn't realize it was a forgiveable loan.  That answer is correct.  If-for some odd quirk in the contract-any portion of the loan was forgiven early, that portion would also be taxable immediately.

aldo63's picture
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Joined: 2006-09-11

you also have to pay imputed interest. an example would be on a 500k payout, they would add about 30k(6%) to your income in year one an less in year two. this is an irs law. this is if you take the whole amount upfront. if you take the money in annual installments, this does not happen

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