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Old 05-18-2016, 08:29 AM
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Smile Bank Owned Life Insurance

I worked for a bank that had keyman life insurance called BOLI. The insurance plan provides a death benefit to the bank and a fixed number of years annuity to me upon retirement. I am retired and have been receiving monthly distribution from the plan. The bank is now merging with another institution and the BOLI plan is going to be cashed in and terminated. The plan calls for a lump sum distribution if it is terminated. I will receive several hundred thousand. I understand this will all be taxed. Nearly 1/3 of it will go to tax. I would like to know if the lump sum can be rolled into an IRA or SEP account instead of taking it as cash in order not to have the tax at this time.



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Old 05-19-2016, 07:32 AM
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yes; I guess you can "roll over" your lump sum into an IRA (new or existing) IF you do so within 60 days of receiving the funds.you have some options: take a lump sum now, roll over into another IRA/sep/etc. you may roll it over into an existing ira/sep plan;
If for some reason you have already received your lump-sum distribution, minus the 20% withholding tax, you?ll still have options. To begin with, you have 60 days from the date you received your payout to invest these funds into an IRA or qualified plan, along with an additional 20% of your own money to cover the taxes withheld (you?ll also receive credit for the 20% withheld when you file your income tax return). Remember, you only have 60 days to complete this process. If you don?t act in a timely manner, your entire payout will be subject to both state and federal income taxes, and, unless an exception applies, the 10% early withdrawal penalty tax. To establish a direct rollover IRA, ask your former employer?s plan administrator (in writing) to transfer the funds to the trustee of the new qualified plan or IRA. The plan administrator must provide you with the opportunity to make a direct rollover



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Old 05-19-2016, 07:39 AM
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Access to your cash value at any age, at any time, for any reason without taxes or penalty. This is a huge benefit of whole life policies compared to 401(k)s and IRAs, which impose multiple obstacles if you want to access your cash before retirement, and penalize you if the funds you borrow from them are not paid back by a certain time and at a certain interest rate. No such obstacles exist with a whole-life policy. So leave your cash in the policy if you wish, or borrow it back out and use it, the choice is yours.Dividends aren't guaranteed, but many reputable life insurance companies have been in business for more than 100 years and they've paid out dividends every year. The amount of that dividend will depend on several factors, but it boils down to how much profit the insurance carrier made. When properly paid to the policy owner, those dividends are not taxable



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Old 05-19-2016, 01:35 PM
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Bank Owned Life Insurance

With a BOLI plan, upon surrendering the policy the bank will receive the cash value of the policy and the key employ named on the policy will receive the annuity, in this situation a lump sum. The employee has no say in the cash value of the policy... it is for the employer exclusively. Hence, the benefit received by the employee is annuity. Since my distribution is going to change from a monthly income to a one time lump sum payout, I am concerned about the amount of tax that will be required. Therefore, if I can transfer it to an IRA of SEP, I think I would like to do that if permissible. BOLI is very similar to COLI-- Company Owned Life Insurance that they may take out on their key employees.



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Old 05-19-2016, 04:32 PM
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I guess it depends; Cash values grow tax-deferred ,tax-free if held until death. BOLI is considered to be a long term illiquid asset not because of its lack of liquidity, as it can be surrendered at any time without policy charges. However if a BOLI contract is surrendered by the bank the gains within the policy become taxable as well as a 10% IRS penalty on the gain similar to surrendering an IRA prior to age 59 1/2. So,BOLI can be surrendered at any time for its cash surrender value. However, doing so may cause adverse tax consequences to the bank. If the policy is held to the death of each insured, the gain becomes part of the tax free death benefit and no tax is incurred. Assuming the bank is in a profitable position it is unlikely they would wish to pay taxes on the gain unless the liquidity of the asset is needed. most life insurance companies offer beneficiaries the option of receiving death benefit proceeds as a series of equal payments over a pre-determined period of time, I mean as annuity, rather than in a single lump sum. Recipients who select this payout method typically receive more money because the benefit amount is transferred into an interest-bearing account. In those cases, the portion of each payment considered interest earnings above the actual death benefit is fully taxable as ordinary income.

Typically, beneficiaries do not have to pay income tax on life insurance death benefits when they are received as a lump sum. However, some insurance companies usually offer beneficiaries a choice of payout options other than a single lump sum. In this case, a portion of these payouts may be considered taxable earnings. There are also other circumstances in which life insurance benefits may be taxed. Life insurance policy proceeds are distributed to named beneficiaries without income tax liability. Beneficiaries who receive a single lump sum as a life insurance death benefit are not obligated to report the payout or include it in gross income calculations. The only exception to this rule would be if a beneficiary received an amount greater than the actual death benefit. Although rare, this situation may occur when the insurance company temporarily places the death benefit in an interest-bearing account while awaiting documentation, or while the beneficiary investigates possible consequences of the various payout options. In addition to the lump sum distribution, the beneficiary would receive any interest generated by the policy proceeds, and that excess is taxable



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