R Griffith

So how do you pay out the life insurance benefits from the retirement plan? I have administered plans with LI, but never had the participant die. They always ended up cashing out or buying the policy from the plan. I just see this as all kinds of messy. Does the insurance company actually pay out directly to the beneficiary (if the policy gets registered correctly in the plan with the beneficiaries)? I would have expected the cash out on death to go to the retirement trust. Thus adding to the retirement assets, that have to be paid to the beneficiary of the retirement plan. Which then brings up the question on if you can have a different beneficiary for the LI policy and the Retirement Plan, things that make me go hmmmm. I also wonder about a participant with the LI in the plan, turning 72 and then having to take RMD's based on the value of the LI, seems so odd.

I haven't read the PTE in a while, but I believe the PTE you are referring too is to get Life Insurance out of the plan. I don't think it works in the opposite, to put the Life Insurance into the plan - and as was stated by Bird - why would you do that? It is just a big pain and for what purpose. I don't see any tax advantages, and in fact don't you lose tax advantage? As the money comes out of the plan, it is taxable, whereas in most cases Life Insurance payouts are tax free (from what I know - haven't actually cashed in a policy). So you are taking an asset without taxes and creating a taxable investment.

My understanding is that if it was deemed, then a 1099R should have been issued. The loan can be paid off, but then it creates a basis which will need to be tracked properly. Depending on the loan provisions, if the participant ever wants to take a new loan out, they generally would need to pay this loan off first to do that.

And yes the 401k limit is not pro-rated, if they can defer the 402g limit in the 6 month participation period, good for them.

I would say, it depends on the document. Generally, when you have a 7/1 entrant or any other than immediate, the document will limit compensation to "while a participant". In that case, yes, only participation compensation counts. However, if the document does not limit the compensation to only participation, then all compensation might count.

I would just like to also mention the confusion about compounding. I have heard in the past that people talk about compounding when discussing investments (see Motley Fool). But I don't think you can consider investing and compounding in the same vein. Compounding is when you earn money and then that money earns more money - i.e. interest in a bank account. To a certain extent, you do get compounding due to the dividends being reinvested - which is the norm in a 401k. But many people confuse investing with compounding, because you earned X% in Y year and then earned W% in Z year. That is not necessarily compounding, that is just investment growth. Especially because when you think compounding, you are only thinking about growth. And we all know that investments don't always go up. So please don't think your investments are having compounding growth, they just have growth (or declines).

I remember having a .pdf document of all the divisors but couldn't locate it. However, a google search provided this result, which I believes provides the information you are looking for (baring the exceptions others have provided regarding the rules you may need for State law). http://www.annuityadvisors.com/reference/detail/rmd-table?refid=96