Tax Facts

3973 / How is an employee’s cost basis determined for an interest in a qualified plan?

An employee normally will have no cost basis if a plan is noncontributory and does not provide life insurance protection.

If life insurance protection has been provided under a cash value policy, the employee usually will have some cost basis, namely, the aggregate one year term costs that have been taxed to the employee, even though the plan is noncontributory.1

A self-employed person who is an owner-employee cannot include in his or her cost basis the annual one year costs of life insurance protection under Table 2001 or previously under P.S. 58 ( Q 3948), even though these costs were not deductible.2 No self-employed person, whether or not an owner-employee, can include in cost basis the cost of any health insurance features under the plan.

Tax Facts Premium Tools
Calculators
100+ calculators specifically designed to help you easily assist clients with specific planning situations and calculations.
Practice Guidance
Designed to help you discover new ways for which to build and maintain client relationships.
Concepts Illustrated
Specifically designed to help you easily assist clients with specific planning situations and calculations.
Tax Facts Archives
Access to the entire library of Tax Facts dating back to 2012 allowing you to look up the exact tax figures from prior years.