RMD and Life Insurance Investment

[RPP2001]

We have a 401k plan participant that only has a life insurance policy as his plan asset and he is a 75 year old terminated employee. Is there an RMD requirement for this participant, and if so, how is it calculated, “distributed,” and taxed? Thank you in advance for any advice.

[Lou S.]

Yes there is an RMD.

Calculated based on FMV of prior 12/31

I don't see a lot of insurance in plans but isn't insurance past NRA problematic from the incidental benefit rules?

You have almost the same "problem" as if the participant's only asset is an illiquid asset.

The likely options are distribute the whole policy to participant for full FMV, surrender the policy for CSV or have participant purchase policy from the plan and make RMD out of proceeds.