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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 16544
Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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I will be 70 1/2 in February 2014 at which time I will begin

This answer was rated:

I will be 70 1/2 in February 2014 at which time I will begin my RMD from my 403B. This account has an insurance component that accelerates the value of the death benefit to my surviving spouse by 5% every year without regard to performance of the market. Obviously the death benefit is more than actual cash value on which the RMD will be based. In the event of my passing after I begin my RMD, I know my spouse can elect to continue receiving my RMD based on actual cash value but the death benefit value will always be a greater amount.

My question is can my spouse elect to take the insurance death benefit and therefore not be obligated to pay federal tax on same because it is an insurance death benefit?

Megan C :

Thank you for your question, and thanks for using JustAnswer.com.

Megan C :

The portion of your spouse's payment that is considered life insurance would not be taxed. You can contact your plan administrator for more details on this. They would keep track of what is considered taxable vs not taxable and report it correctly on the 1099 sent at the end of the year

Customer:

So likely the difference between the actual cash value of the fund and the death benefit value would not be taxable?

Megan C :

Yes, the value of the death benefit would not be taxable

Customer:

The value of the death benefit or the value of difference in stated death benefit, that has rolled up 5% a year, and the actual cash value of the fund based on market peformance?

Megan C :

The difference of the stated benefit and actual cash value of the fund

Customer:

And that would be considered by irs to be the death benefit that would not be taxed?

Megan C :

That is correct

Customer:

Thanks, XXXXX XXXXX been very helpful

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Thanks, Thomas for your positive rating. Please come back and visit MyVirtualCPA for any of your tax, finance, or social security needs. It was a pleasure working with you today.