Voluntary Employees Beneficiary Association Plan - VEBA

AAA

DEFINITION of 'Voluntary Employees Beneficiary Association Plan - VEBA'

A tax-free post-retirement medical expense account used by retirees and their eligible dependents to pay for any eligible medical expenses. The plan is funded by the amount of unused sick leave that an employee has at the time of retirement, which is contributed by the employer into the plan. The benefit of this plan is the amount of sick leave left at retirement is paid out in full to the plan and is not subject to tax, which would reduce the amount one would receive.



INVESTOPEDIA EXPLAINS 'Voluntary Employees Beneficiary Association Plan - VEBA'

VEBA plans are considered to be welfare benefit plans under federal tax law and are tax-exempt under Section 501c9 of the Internal Revenue Code. Contributions to a VEBA are therefore tax-deductible and the funds grow tax-deferred. There are no tax penalties for early distributions from the VEBA, and assets are protected from creditors.

Employers must first obtain a letter of determination from the IRS for their plan to be considered a VEBA for federal income tax purposes. VEBAs are subject to some aspects of the Employee Retirement Income Security Act of 1974 (ERISA); however, they are not considered to be qualified retirement plans. For example, unlike 401(k) or 403(b) plans, participant withdrawals from a VEBA are not taxable if made before age 59.5 And withdrawals from a VEBA are not required to begin at age 70.5.

RELATED TERMS
  1. Dependent

    An individual whom a taxpayer can claim for credits and/or exemptions. ...
  2. Plan Sponsor

    A designated party, usually a company or employer, that sets ...
  3. Accident And Health Benefits

    Fringe benefits provided to employees for sickness, accidental ...
  4. 401(k) Plan

    A qualified plan established by employers to which eligible employees ...
  5. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt ...
  6. Employee Retirement Income Security ...

    The Employee Retirement Income Security Act of 1974 (ERISA) protects ...
Related Articles
  1. Fighting The High Costs Of Healthcare
    Home & Auto

    Fighting The High Costs Of Healthcare

  2. Top 3 Retirement Savings Tips For 55- ...
    Retirement

    Top 3 Retirement Savings Tips For 55- ...

  3. When Your Job Offers An Awful Retirement ...
    Retirement

    When Your Job Offers An Awful Retirement ...

  4. Top 5 Strategies To Pay For Elder Care
    Retirement

    Top 5 Strategies To Pay For Elder Care

comments powered by Disqus
Hot Definitions
  1. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  2. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  3. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  4. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  5. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  6. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
Trading Center