If a participant holds whole life insurance in their 401(k) and dies, the excess death benefit is considered to be tax-free to the beneficiaries, but the cash surrender value is deemed to be a taxable distribution.

So let’s say the spouse is the beneficiary, can she just receive the excess of the death benefit over cash value and keep the cash value in the plan, so that she can roll it into her IRA? Or must she take the full death benefit and is subject to the tax immediately?

Thank you for any guidance!