Life ins contract in IRA

[Moe Howard]

PSP will soon terminate. The PSP holds a "life ins contract" as one of the plan investments for participant X.

Can participant X roll her "life ins contract" from PSP to IRA ?

I've had some people (insurance agent , a high school bookkeeper, a minister, etc) tell me it is impossible, some say it can be done with difficulty, others say it's no problem.

I have never run across this situation before. Can anyone advise ?

[Bird]

Can't do it.

There are creative ways to get a policy out of a plan and into the participant's hands with little or no taxable income to be shown - borrow against the policy while it's still in the plan, leaving only enough net cash value to equal the accumulated PS-58 costs, then distribute the policy. But you're left with a stripped-down policy that will likely need significant interest payments to keep it going.

[Moe Howard]

Bird, ok thanks. The main thing is I now know that it can't be done. Thanks for the info.

Additional questions:

1) I need to show the employer that it can't be done. I need proof to convince the employer. Do you know of any IRS code section, publication, etc ..... that I can show to employer that says/ explains that a life insurance contract cannot be rolled from PSP to IRA or that a life ins contract cannot be held in an IRA? (I realize that since it can't be done ... then no IRA will accept such a rollover, which seems to be proof by itself. But a code or publication reference sure would calm the employer down and get the CEO off my back. The employer company is controlled by a 33 year old woman who inheited the business from her family ... she is a spoiled brat and hard to work with. I am actuallly scared to death of her).

2) If the participant borrows on the contract , can participant roll those borrowed funds over to IRA ?(Remember that the PSP is going to terminate annyway). If so, would participant have to wait until the PSP terminated to roll the proceeds to IRA ? Can you direct me to something I can read on the matter.

[Bird]

408(a)(3):

§ 408 Individual retirement accounts.

408(a)(a) Pension Individual retirement account.

For purposes of this section , the term “individual retirement account” means a trust created or organized in the United States for the exclusive benefit of an individual or his beneficiaries, but only if the written governing instrument creating the trust meets the following requirements:

408(a)(1)(1) Pension Except in the case of a rollover contribution described in subsection (d)(3) in section 402© , 403(a)(4) , 403(b)(8) , or 457(e)(16) , no contribution will be accepted unless it is in cash, and contributions will not be accepted for the taxable year on behalf of any individual in excess of the amount in effect for such taxable year under section 219(b)(1)(A) .

408(a)(2)(2) Pension The trustee is a bank (as defined in subsection (n) ) or such other person who demonstrates to the satisfaction of the Secretary that the manner in which such other person will administer the trust will be consistent with the requirements of this section .

408(a)(3)(3) Pension No part of the trust funds will be invested in life insurance contracts.

The borrowed funds wind up as part of what is commonly known as the "side fund," i.e. non-insurance monies, and yes, that can be rolled over. Sorry but I don't know where to direct you for more reading.

[Guest mjb]

1)See Pub 590 P26 col 1 on LI rollovers.

2) Pub 590 P 25 col 2, rollover of proceeds from a sale of property held in plan

[Bill Presson]

Bird, ok thanks. The main thing is I now know that it can't be done. Thanks for the info.

Additional questions:

2) If the participant borrows on the contract , can participant roll those borrowed funds over to IRA ?(Remember that the PSP is going to terminate annyway). If so, would participant have to wait until the PSP terminated to roll the proceeds to IRA ? Can you direct me to something I can read on the matter.

You can roll it over if you borrow the money out of the contract prior to it leaving the plan. Then those assets will be part of the rest of the PSP.