AD Banker Comprehensive Practice Exam

What is the main benefit of a 501(c)9 trust?

1. Costs of setting up these trusts are always lower than other types of plans

2. That distributions from the trust are always received tax-free

3. Contributions to these trusts may be deducted immediately, instead of when benefits are distributed

4. Contributions to these trusts are not tax deductible at all

The correct answer is: Contributions to these trusts may be deducted immediately, instead of when benefits are distributed

The main benefit of a 501(c)(9) trust lies in the immediate deduction of contributions, which is not typically available in many retirement or welfare plans. A 501(c)(9) trust, often referred to as a Voluntary Employees' Beneficiary Association (VEBA), allows employers to make contributions to the trust that can be deducted as a business expense in the year they are made. This feature provides immediate tax relief to the employer, which can be a significant financial advantage in managing employee benefit costs. This type of trust is specifically designed to provide specific benefits to employees and their beneficiaries, such as health coverage, life insurance, or other welfare benefits, and the contributions can thus be considered as necessary business expenses. By allowing the contributions to be deducted immediately, the trust encourages employers to fund employee benefits more readily, ultimately supporting the workforce's well-being. The other options do not reflect accurate benefits of a 501(c)(9) trust. For example, while some distributions may be received tax-free by employees depending on the nature of the benefits, this is not universally the case, which counters the notion of guaranteed tax-free distributions. Additionally, the costs associated with setting up these trusts can vary widely and are not always lower than those for