Situation: Husband and wife (no other EEs in the plan) want to terminate their frozen Money Purchase Plan, and roll to an IRA (both are age 65+). Currently, they have collectibles (i.e. artwork) in the plan.

I thought independent trustees existed who could handle the collectibles, so the clients would not have to sell them, but could retain them in an IRA, however I'm not finding anything online.

Is there any retirement plan, besides a qualified plan, that would allow collectibles as an asset?

Collectibles cannot be held by a self-directed qualified plan, or by an IRA (including SEP, SIMPLE, etc.) (Code Section 408(m)). Nor, by dint of the definition of a 403(b), can a tax-sheltered annuity hold a collectible (Code Sections 403(b)(1) and (7)). About the only thing to do would be to continue the frozen MPPP, then be careful when the artwork is appraised for the age 70-1/2 MRDs. (By the way, I would be concerned that a frozen plan, where the only participant(s) are also trustee(s), might be considered to be self-directed for these purposes, so you may already be in trouble.)

Is it possible for them to sell the art to their taxable account at the appraised value to get it out of the plan?

Wouldn't that be a prohibited transacation? The Plan could sell the collectible to an unrelated party for FMV, but not to the Trustees/participants. Of course, they could take the artwork as a distribution (if the plan permits in-kind distributions), pay the tax, and then let the artwork appreciate in value (assuming it will appreciate) outside of the plan at capital gains rates (with a step-up in basis at death) rather than continuing to hold it in the Plan where its appreciation will be taxed as ordinary income.

Yes it would be better to sell to unrelated 3rd party. Since they have made the mistake of not getting exemption before hand, the best bet is to fess up and try work with IRS to find a way to fix the IRA.