How do PS-58 costs affect a distribution?

[John A]

A plan participant wishes to rollover the full amount of his plan distribution to an IRA. He has had a life insurance policy in the plan.

Am I correct that:

1) He can (providing it is not prevented by the plan document) choose to purchase the life insurance policy by writing a check to the plan in the amount of the cash value of the policy.

2) The total of the PS-58 costs that have been reported in the past will have to be paid directly to him as a non-taxable distribution.

3) The non-taxable distribution will not be subject to the 10% premature distribution penalty.

4) The remaining money after distribution of the PS-58 costs must be paid in an eligible rollover distribution?

[rcline46]

Amazing, you got it right! I did not think anyone understood insurance anymore!

[Kirk Maldonado]

rcline46:

I agree with you on points 1 through three.

But what is your authority for point #4, which is ""The remaining money after distribution of the PS-58 costs must be paid in an eligible rollover distribution?"

[John A]

Follow-up questions:

1a) Could the participant write a check to the plan for the net amount (cash value minus PS-58 costs), and then distribute the policy?

2a) Could the plan borrow the net amount (cash value minus PS_58 costs) from the policy and contribute this amount to the participant's account, and then distribute the policy?

Kirk, I'm just looking at the definition of an eligible rollover distribution. I'm not implying that the money has to be rolled over. Did I misunderstand your question, or does that answer your question?

[Edited by John A on 09-27-2000 at 12:41 PM]