Rabbi Trust

Rabbi trusts are designed for employees with higher earnings than those who typically participate in traditional plans like 401(k)s. Given their income, these employees seek to accumulate more retirement savings. With a Rabbi trust, employers deposit a portion of the employee’s annual income into an irrevocable, tax-deferred trust. Employers often direct those trust funds into cash-value permanent life insurance or annuity contracts, both of which grow on a tax-deferred basis.

The term originated from an IRS ruling that approved a similar compensation arrangement for rabbis.