IRS Finalizes Rules for Tax Treatment of Retirement Plan Payments for Insurance Premiums

The Internal Revenue Service has issued final regulations clarifying the rules regarding the tax treatment of payments by qualified retirement plans for accident or health insurance.

The final regulations in TD 9665 set forth the general rule under Section 402(a) of the Tax Code that amounts held in a qualified plan that are used to pay accident or health insurance premiums are taxable distributions unless described in certain statutory exceptions.

But the final regulations do not extend this rule to arrangements under which amounts are used to pay premiums for disability insurance that replaces retirement plan contributions in the event of a participant’s disability.

The regulations affect sponsors, administrators, participants, and beneficiaries of qualified retirement plans. They generally apply for taxable years that begin on or after Jan. 1, 2015. However, taxpayers may elect to apply the regulations to earlier taxable years.