Life Insurance and loans

[artvandelay3]

I've got an old 401k plan with a paid up Life insurance policy in the plan. The plan itself doesn't allow loans but the insurance policy does. Can particpant take a loan out of the inurance policy? Will this loan need reported on the 5500 as a plan loan? Is there a limit what they can borrow.

I'll be honest I'm lost when it comes to Insurance policies in general in qualified plans and if anyone has a link that explains how this stuff works it would be greatly appreciated.

[Belgarath]

First, and I'm not being a wise-guy, check the plan document.

The insurance policy should be owned by the Trustees of the Plan, so the participant can't simply borrow from the policy. The plan may allow participant loans, and the policy cash value may be included when calculating the total vested interest for purposes of maximum loan amount, BUT, many Plans limit the loan proceeds to coming out of assets OTHER THAN the insurance policies.

[Bill Presson]

If the plan doesn't allow loans, then the participant can't borrow from the plan. The insurance policy is an asset of the plan so it's covered under that rule. The insurance loan provision would allow the trustees to borrow money out of the insurance policy and put it in the participants "cash" account to invest.

[Belgarath]

I agree with Bill - assuming the plan language allows it - I'm only fixating on this because I have worked with documents that would NOT permit this, so just be careful. Odds are good that the document doesn't contain any such restriction as I originally mentioned on loans from insurance cash value anyway.

[PJF414]

I saw this line of questions and answers, and I have one that is driving me crazy. We have a life insurance policy in a 401k plan, and the insurance agent wants the dividends on the policy to be used to pay the premium this year (the contributions are not sufficient, and there is not enough seasoned money). It was designed based on the understanding that a big rollover would come in, but that never happened.

Would using the dividends to pay the premium cause a premature withdrawal and/or a prohibited withdrawal? I am looking at it as I would the income from another investment, and it would seem that since the other income could not be transferred to pay the premium, then the dividends should not either.

Am I off-base, or does this sound reasonable?

Thanks!

[Bill Presson]

I saw this line of questions and answers, and I have one that is driving me crazy. We have a life insurance policy in a 401k plan, and the insurance agent wants the dividends on the policy to be used to pay the premium this year (the contributions are not sufficient, and there is not enough seasoned money). It was designed based on the understanding that a big rollover would come in, but that never happened.

Would using the dividends to pay the premium cause a premature withdrawal and/or a prohibited withdrawal? I am looking at it as I would the income from another investment, and it would seem that since the other income could not be transferred to pay the premium, then the dividends should not either.

Am I off-base, or does this sound reasonable?

Thanks!

It's fine to change the dividend option to have them reduce the premiums. It's not a prohibited option.

WCP

[david rigby]

On ‎10‎/‎26‎/‎2015 at 0:32 PM, PJF414 said:

... the insurance agent wants ...

Only partially snarky: so what?

[PJF414]

He's asking on behalf of the client, who actually posed the question. He doesn't have any idea. I just don't want to accidentally trigger some sort of unauthorized distribution. The plan document does not address dividends paying premiums, only contributions.