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PSP Sole participant deceased


Lori H

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Hi,

A lone participant has passed away and the wife is wrapping up the affairs of the plan. a life policy was in the plan with a Face amount of $55,000 and a CSV of appx $35,000 at the last plan year end. What will be her tax implications on that policy, if any and how will that policy be reflected as a distribution? Will the CSV at the time of death be used for 5500 purposes or the Face amount?

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The tax-free portion is the at-risk amount (55k-35k) minus previously taxed cumulative PS-58 costs, if someone maintained that information.

For the 5500, use whatever is there or paid as of the reporting date. So, assuming you reporting the CV at the end of the prior year, and you received the face value during the year and turned around and paid it out, the face value is part of the distribution. If it's not paid out for some reason, then it's included in the assets at the end of the year.

(If you were showing the premiums as an expense and not including the face value in the plan assets on the 5500 in prior years, then I guess you don't show any of the insurance activity at all in the current year. I've seen that but never liked it much.)

Ed Snyder

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