thepensionmaven Posted January 8, 2023 Share Posted January 8, 2023 Not sure this was done correctly. Participant terminated, plan funded with annuity and life insurance. Insurance policy is the only distribution, the policy ownership and beneficiary were changed to the individual. Of course, the insurance company does not prepare 1099s. From the broker: "What we did was, take the cash value as a distribution and rolled it into the participant's annuity contract." Insurance company told the client this is an unreportable transfer from the life insurance policy to the annuity. Isn't the cash value taxable?? Link to comment Share on other sites More sharing options...
Bill Presson Posted January 9, 2023 Share Posted January 9, 2023 How was the annuity owned when this happened? William C. Presson, ERPA, QPA, QKA bill.presson@gmail.com C 205.994.4070 Link to comment Share on other sites More sharing options...
thepensionmaven Posted January 9, 2023 Author Share Posted January 9, 2023 The annuity is owned by the plan. Link to comment Share on other sites More sharing options...
Bill Presson Posted January 9, 2023 Share Posted January 9, 2023 So, the policy was surrendered while still owned by the plan and the cash value was deposited into the annuity while still owned by the plan? Then there's no distribution and no taxable transaction. It's no different than selling a mutual fund and depositing the money into a money market account. Also, to be clear about the broker's comments: there was no "distribution" (as we use the term) and the money wasn't "rolled" (as we use the term). Luke Bailey and Bri 2 William C. Presson, ERPA, QPA, QKA bill.presson@gmail.com C 205.994.4070 Link to comment Share on other sites More sharing options...
Bird Posted January 9, 2023 Share Posted January 9, 2023 21 hours ago, thepensionmaven said: Not sure this was done correctly. Participant terminated, plan funded with annuity and life insurance. Insurance policy is the only distribution, the policy ownership and beneficiary were changed to the individual. Of course, the insurance company does not prepare 1099s. From the broker: "What we did was, take the cash value as a distribution and rolled it into the participant's annuity contract." Insurance company told the client this is an unreportable transfer from the life insurance policy to the annuity. Isn't the cash value taxable?? The two actions you cite above are contradictory. I don't know which to believe; either the ownership was changed to the individual (in which case it is a distribution) or it was surrendered and the proceeds put in the annuity (in which case, as Bill Presson notes, it was not a distribution). I would go back to the agent and ask again. Ed Snyder Link to comment Share on other sites More sharing options...
Belgarath Posted January 9, 2023 Share Posted January 9, 2023 Or, the agent doesn't understand the technical details. Possible that the policy had the cash value "stripped out" by the Trustee via a maximum loan, and deposited this into the annuity, leaving only the value of the Taxable Term Cost in the life policy, which was then distributed to the participant. No taxable distribution if the only value in the policy represents previously taxed TTC. Not saying this is what happened - only that it could have happened this way. Caveat - I have blessedly had nothing to do with life insurance in plans for well over a decade, so either things could have changed or my memory could be faulty. P.S. - I'm also making an assumption this participant is not self employed or an unincorporated partner... Bill Presson and Luke Bailey 2 Link to comment Share on other sites More sharing options...
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