ps plan: freeze or terminate?

[Lori H]

2 particpant/2employee psp has been in effect for 10 years plus. father son plan.

the assets are separate brokerage accounts and a life ins policy for each. the son is on disability. plan has not been funded in quite some time.

the fathers brokerage account has been distributed to him. he's over 60. initially they wanted to terminate the plan, but now their agent is pushing to freeze the plan in order to avoid the heavy tax penalty on the csv($71,000). we did a corporate resolution to terminate and it was executed. i feel the plan should be terminated, but would there be any way around the fact that the plan was in existence to avoid taxation?

ive never been a fan of life policies in qualified plans.

[Bird]

Start by asking the agent when it would be appropriate to terminate the plan. The longer it stays around, the worse the problem gets. You might have to "remind" him that if the insured dies while the policy is in the plan, only the "at-risk" portion is tax-free, and that decreases each year.

Seriously, ask him for a game plan.

[david rigby]

... would there be any way around the fact that the plan was in existence to avoid taxation?

Huh?

Some other thoughts, in no particular order:

- Anyone considering a rollover?

- What is the point of terminating?

- Why was Dad's account (or part of it) "distributed"? Did that conform to the terms of the plan?

[mbozek]

What do they want to do with dad's LI? If they want to keep the policy in force and not pay tax on the CSV then convert the PS plan to a 0% money purchase plan. No er contributions are required to a 0% mp plan. If they dont care about the LI policy, cancel the policy, rollover the 71k to an IRA and terminate the plan.