How many 1099-Rs for death benefit? Cash value portion is rolled over.

[Flyboyjohn]

Plan owns $200,000 life insurance policy on participant with $50,000 CSV.

Participant dies and surviving spouse makes a direct IRA rollover of $50,000 and receives $150,000 cash distribution.

Does the plan issue 2 1099-Rs, one for the direct rollover and another for the pure life insurance proceeds?

If so what code do we use on the one for $150,000?

Many thanks in advance.

[My 2 cents]

Would it be the case that the plan owns the life insurance policy and that, after the participant dies, the proceeds are treated as plan assets which are then used to pay the plan's death benefit? In that case, would the fact that the funds came from an insurance policy be unrelated to the tax treatment of the death benefit paid to the beneficiary?

[Flyboyjohn]

Yes, proceeds were treated as plan assets. Not understanding the 2nd question, sorry.

[My 2 cents]

Yes, proceeds were treated as plan assets. Not understanding the 2nd question, sorry.

If the plan had not invested in life insurance but paid the same death benefit, how would the tax reporting have been handled? Why would the $150,000 not be treated the same as a self-insured cash death benefit from a pension plan? The fact that there had been an insurance policy owned by the plan should not affect how the proceeds as paid out are taxed, should it? Or are the tax rules concerning such benefits different?

[Flyboyjohn]

I'm under the belief that under these facts the true life insurance proceeds (excess of face over cash value) gets to the death beneficiary income tax free and only the cash value is taxable, sure hope I'm not wrong in that understanding.

Fortunately life insurance in DC plans is exceptionally rare compared to 30 years ago.

[Bird]

I'm under the belief that under these facts the true life insurance proceeds (excess of face over cash value) gets to the death beneficiary income tax free and only the cash value is taxable, sure hope I'm not wrong in that understanding.

That's correct. You need 2 1099-Rs, as originally suggested. The one for $150,000 is code 4, taxable amount $0.

(Actually, if PS-58 costs were properly reported, they are recovered as a return of basis, possibly increasing the $150,000 non-taxable portion.)