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Pension rollover to life insurance

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    Pension rollover to life insurance

    Client's profit sharing plan was terminated. He rolled some of it into a 401k and put the rest into a cash value life insurance policy. I know the portion allocated to the policy is taxable, but is it exempt from the 10% penalty? Thanks!

    #2
    It is not a rollover. It is a taxable distribution, subject to the 10% early withdrawal penalty. The fact that it was reinvested in a life insurance policy is irrelevant, if the life insurance policy is not an IRA or a qualified retirement plan.

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      #3
      I have a question. A client retired and received his 401k in Dec 26, 2019. Now he would like to rollover part of his pension into IRA within 60 days. His 1099-R is going to be 25.000. If he rollover10,000 within next 2 weeks. Do you put 25000 distribution and 15,000 taxable for 2019 tax return? Even the rollover happened in 2020?

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        #4
        Originally posted by liberty View Post
        I have a question. A client retired and received his 401k in Dec 26, 2019. Now he would like to rollover part of his pension into IRA within 60 days. His 1099-R is going to be 25.000. If he rollover10,000 within next 2 weeks. Do you put 25000 distribution and 15,000 taxable for 2019 tax return? Even the rollover happened in 2020?

        It is the 60 days that is critical. On my software you would input total distribution $25,000 in the 1099-R screen and then in the rollover section $10,000 would be shown as rolled over. The software will calculate the taxable amount $15,000 and show that on 1040.. I am assuming the Box 7 was code 2, so that would have to be inputed in the 1099-R screen to eliminate the 10% penalty.
        Taxes after all are the dues that we pay for the privileges of membership in an organized society. - FDR

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