Further, because H is paying the income tax out of his own pocket, in effect the $121,000 is growing income tax free as well, similar to a qualified pension or profit-sharing plan
. This is helpful estate planning, in that H is reducing his taxable estate by the income tax paid, without that payment being deemed a gift.
Under the Internal Revenue Code and the Employee Retirement Income Security Act of 1974 (ERISA), excise taxes may be imposed on a qualified pension or profit-sharing plan
that engages in "prohibited transactions," i.e, certain financial transactions between the plan and a "disqualified person." Disqualified persons include (among others) fiduciaries, persons providing services to the plan, the employer of persons covered by the plan, owners of the business sponsoring the plan and family members of such owners (Sec.