Can the cash value of a life insurance policy be rolled over to a 401K?

[Scott Reed]

I have a variable appreciable life insurance policy that I want to surrender. I would like the insurance company to mail me a check for the cost basis of the policy, which is not taxable. Then I would like the remaining cash value of the policy, which is taxable,  to be rolled over to my 401K account. Is this possible? The insurance company will not handle roll-overs so I have to get my financial manage to do that. 

[justanotheradmin]

unless the life insurance policy is owned by one of the entities in the "FROM" column the answer is likely no. 

https://www.irs.gov/pub/irs-tege/rollover_chart.pdf

You own the policy yourself? directly? I don't see why it would be a rollover, its not coming from a tax qualified retirement account. 

I realize the life insurance feels like a tax qualified account - but it is a very specific kind - upon death. Its not the same as tax deferred or tax qualified retirement account. which is what it needs to be coming from in order to be eligible for rollover into a 401(k) plan. 

[justanotheradmin]

if you are not doing the maximum deferrals to the 401(k) plan - that is a good place to start. 

For example, when folks get upset about their RMD being taxable income to them, and I notice they could be deferring more - that is an easy fix. Do pre-tax deferrals to counteract the RMD income. 

Do more pre-tax deferrals and it will help counteract the taxable income you face with cashing out the policy. None of this is tax advice, just pointing out the math. Consult with your own advisor when making a decision. 

[Bruce1]

Hi Scott, you can only roll money from one like account to another. For example, an IRA can go to a 401k and vice versa. 

 

Your variable life insurance policy isn't an IRA, therefore, it cannot be rolled into a 401k. 

 

Also generally withdrawals from annuities and possibly variable life insurance are LIFO, which means last in last out. Your earnings if they are LIFO are withdrawn first. Sometimes withdrawals may be pro-rata. Pro-rata would mean $80,000 basis and $20,000 of earnings. For every $1 withdrawal, you will have $.20 of earnings and $.80 of basis. You would have to call the insurance company to find out. I don't think you can elect to withdraw your basis and leave your earnings, it's just not something you can do. 
 

Meet with a licensed advisor or PM me.