MRD and life insurance policies

[Guest amybu99]

I have a participant who is a 5% owner, age 73 and retired this plan year. He rolled his vested benefit out of the employer's profit sharing plan and into an IRA. However, he wants to keep his life insurance policy in the plan. How can he take a minimum distribution from the plan if his benefit is tied up in an insurance policy?

Help!

[pmacduff]

Amy - I think you have more problems than the MRD - It is my understanding that an insurance policy MUST be out of the Plan when anyone age 65 (or over) retires. The policy can be (1) transferred to the participant & participant takes over premium payments and received a 1099-R for the cash value on transfer; (2) policy surrendered and the cash value rolled with the balance; or (3) cash value stripped, deposited to plan and rolled with balance, policy transferred to individual, individual takes over premium payments and replenishes the cash value "loan" with personal funds - no 1099-R for cash value is necessary. As far as I know, the policy must be distributed and cannot remain in the Plan. Perhaps someone can help me out here with more info...

[Belgarath]

I agree. The documents I've seen allowing life insurance say something to the effect that by the Annuity Starting Date, or if later, by Retirement... I do believe that if the participant had a greater than cash out benefit, and was young enough to not require minimum distributions, and elected not to receive any benefit currently, that the insurance could be maintained, assuming incidental limits were met. But since this participant has had an "Annuity Starting Date" already, I agree that there's no way to keep it in the plan. But maybe there are IRS approved documents out there that have other provisions, although I'd be surprised if the IRS would allow it - I seem to remember that such provisions were based upon IRS provided LRM language.