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You are here: Experts > Money > Personal Insurance > Life & Health Insurance > taxation of life ins. death benefits
Expert: Dave Bowman - 10/22/2009
Question
I rec. the proceeds of life insurance when my brother died. Are these dollars taxable to me.
Also, he had a tax deferred 457 plan and I am the beneficiary. Can I roll those dollars into an IRA for myself??? Thank you
Answer
In most instances, life insurance proceeds are not subject to income taxes. However, if your brother's estate was large enough, the life insurance proceeds will be considered a part of his estate (assuming that he owned the policy), and may trigger federal estate or state inheritance taxes. As the estate tax rules are in flux, you may want to discuss this with a tax professional such as a CPA or tax attorney.
A section 457 plan can now be rolled over into a "beneficiary" IRA. If he was over age 70 1/2 and had started taking IRA distributions, you will need to continue those distributions based on his remaining life expectancy. If not, you will need to make annual distributions based on your own life expectancy. The IRS publishes a table that lists the factors for determining the annual withdrawal amounts.
David S. Bowman, CLU
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