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Buying life insurance with plan assets


MGOAdmin

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I have a client (under age 59.5) that wants to buy life insurance with his 401k/Profit Sharing account. 

He has been a participant for 15 years so I don't think there is any issue with "seasoned money" since the plan document also states that after 5 years this is a non issue.

Could I be missing something?

Can he use any source to buy life insurance or does it have to be employer sourced since he is under age 59.5?

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6 hours ago, MGOAdmin said:

I have a client (under age 59.5) that wants to buy life insurance with his 401k/Profit Sharing account. 

He has been a participant for 15 years so I don't think there is any issue with "seasoned money" since the plan document also states that after 5 years this is a non issue.

Could I be missing something?

Can he use any source to buy life insurance or does it have to be employer sourced since he is under age 59.5?

Forget about "seasoned money" at all.  Unless he wants a taxable distribution (which is what a seasoned money use would be), you need to comply with the incidental insurance rules (the so called 25% or 50% rules - depending on the type of insurance purchased).  And if you tried to use the seasoned money concept, you do have to comply with the other distribution restrictions (like the 59 1/2 rule).

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

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