Use of Seasoned Money to Purchase Insurance (Posted March 22, 2002) Technical Tip 69: The following question and answer were from the IRS Q&A Session at the 2000 ASPPA Annual Conference: A profit sharing plan allows for in-service distributions upon five years of plan participation. The plan also allows for the purchase of life insurance subject to the incidental death benefit limits. Finally, the plan allows for the use of "aged money"--i.e., the amount that could be distributed under the five-year rule--to purchase life insurance over and above that which could be purchased under the incidental rules. Does the use of such aged money result in taxable income to the participant--not just the PS 58 amount, but the entire amount of aged money used to the extent the incidental amounts are exceeded? Response: Yes. Comment: A number of practitioners disagree with the Service's conclusion, taking the position that only the PS 58 amount should be treated as taxable income to the participant. Nevertheless, we felt it was important for you to be aware of this IRS position. View all Tips © 2012 Reish Luftman Reicher & Cohen, a Professional Corporation Important notice: Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner's situation. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of your situation.