Distribution from terminated? plan

[chris]

Participant of Keogh plan who is sole participant of plan and who is 100% shareholder of corporation sponsoring Keogh plan passed away two years ago. Decedent was a licensed professional such that the P.A. basically dissolved when he passed away. Nothing has been done with the plan. Insurance company has suggested that a non-transferable annuity be purchased and distributed out to the beneficiaries named by decedent. Insurance company is the trustee of the plan and without citation of authority feels that this would not be a taxable event as to the beneficiaries of the annuity; rather, the beneficiaries would report income as they received annuity payments. I don't know if it is really that easy. Can anyone give me some authority on this or give me their experiences in such a situation??? Thanks for your help.

[david rigby]

What type of plan is this? What does the plan say about death benefits? Is there a surviving spouse?

[chris]

It's actually a profit sharing plan with the decedent's P.A. as the sponsor. Non-transferable annuity is permitted distribution under the plan doc. No surviving spouse. A bigger problem which I just found out is that accountant supposedly terminated plan in 1987, but,.. you guessed it..., assets never made it out of plan. Also, no 5500's filed since 1987. ???

[chris]

One more thing as to the above plan is that the document hasn't been amended since some time in 1984. Also, seems that Reg Sec 1.402(B)-1©(1) would say that the face of the annuity is taxable upon distribution.