A doctor in a 3 participant pension plan has a USAA life policy with a face amount of $300K and a cash value of over $200K, they have to pay quite a bit in PS 58 costs each year on the policy. The doctors wife was inquiring as to how this may be avoided and if the policy could be assigned in the doctors name rather than the plan. I explained this would possibly be a taxable event. He is 65 and still in practice. If he gives up the insurance he loses the face amount. Is he stuck with these costs? A 1035 exchange???? I always felt life policies had no business being held in a qualified retirement plan

No great answers. He can buy it from the plan, but then he has to come up with the cash in order to do it. He can have the plan borrow most of the cash out and then buy it for its stripped value, but then he'd probably have to pay significant loan interest outside the plan to keep it going. If the plan permits it, he might take it as a distribution but as you note it's taxable.

Bird, do you mean replace the cash value with cash from outside the plan? Say for instance the cash value was $200, 000 and this doctor just happened to have that in his regular savings account. Just sub the savings for the cash value and assign the policy to him?

Thanks

Yes. That's buying the policy and there is a prohibited transaction exemption for it.