insurance distribution

[R. Butler]

Retirement plan has whole life insurance policies within the plan. (Life insruance in the plan is a bad idea if you ask me, but the plan sposnor didn't ask me.)

Simple example --

Participant terminates with a an invetsment balance of $80,000 and a life insurance policy with a cash value of $20,000. Participant is going to rollover the $80,000 and wants the life insurance transferred to her. Can the plan sponsor have the insurance transferred without withholding the 20% tax or does the tax have to be paid at the time of transfer?

Thanks for any guidance.

[R. Butler]

Never mind. I found my answer.

Thanks

[My 2 cents]

Never mind. I found my answer.

Thanks

This is a bit like the comment Fermat made in the margin of a book concerning an easy to understand numerical theorem (there is no combination of a, b and c (all positive integers) for which aⁿ = bⁿ + cⁿ, where n is a positive integer greater than 2) that became known as "Fermat's Last Theorem" and which took 350 years to prove. After stating the theorem, he wrote "I have discovered a truly marvelous proof of this, which this margin is too narrow to contain."

In this instance, my mind is too narrow to be concerned with the proper taxation of life insurance policies that had been held in a 401(k) plan, or I would be clamoring for your answer.

[Mike Preston]

I'm not above clamoring, but alas, I am but one.

[Belgarath]

It is subject to the mandatory 20% withholding, which is a royal PIA with life insurance. Could involve partial loans or withdrawals depending upon type of policy, etc. - and of course you may need to take taxable terms costs into account in determining taxable distribution, blah, blah, blah...

See 31.3405©-1, A-10(d) sends you to 35.3405-1, F-1 through F-3. (My CCH - excuse me - Wolters Kluwer - lists it as 35.3405T-1 - I didn't have time to check if the "T" is appropriate or not)