Rollover due to Disability

[Christine Roberts]

Doest the term eligible rollover distribution include lump sum payouts of long term disability benefits pursuant to an LTD insurance policy, or is it limited to distributions from qualified retirement plans due to a participant's disability.

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[Christine Roberts]

I retract the question. The definition in Sec. 402©(4) of an eligible rollover distribution is clearly limited to distributions from a qualified trust, and I don't believe that distributions pursuant to a LTD policy meet that description. Sorry for any confusion!

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[KIP KRAUS]

Christine:

If monthly LTD payments aren't eligible to be put into a qualified plan, in my opinion, a lump sum LTD distribution wouldn't be.

I guess I'm perplexed at the question.

[Guest Gabe Chambers]

Christine:

It may depend if we are talking "Participant" loans, or "Plan" loans, but this is only related to the retirement plan itself. The retirement plan is a single entity outside of the LTD policy. The law states that if the participant takes a qualifying rollover from a retirement plan that offers loans, than the plan is required to follow its plan documentation regarding treatment of the loan. The loan can be foreclosed upon, or transfered to the new institution (unlikely in the event of roll to IRA). In some instances, I know of employers allowing the loan to exist after the distribution of plan assets. At any rate, the disability distribution is only related to the retirement plan (not an insurance contract). I have not yet heard of a cash value LTD contract, but if it exists, I doubt they allow loans against them.