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Guest blackacre

401(k) Withdrawals while still working

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Does a plan have to have any specific provision to allow employees to start withdrawing from a 401(k) while he or she is still working?

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No.

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If you are still working, a plan can only allow 401(k) access as a loan, or as a hardship withdrawal, unless another "distributable event" has occurred. If you want a loan, the plan must permit loans. If you are taking a hardship withdrawal, the plan has to allow for hardships, and you have to meet certain requirements, and (depending upon plan provisions) salary deferral contributions may be prohibited for 6 or 12 months. If you are not taking a hardship withdrawal, you will need another distributable event, for example, turning age 59 1/2 or disability or death.

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Thanks, Mike and WMyer for your replies. If the withdrawals are limited to those over 59.5 who are still working (whether for the Company or not) then nothing affirmative would have to be said but any limitation on the employee's right to make such withdrawals would have to be eliminated from the plan. Have I understood you correctly?

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I thought it was understood that "still working" meant "still working for the plan sponsor of the 401(k) plan". However, with that said, I don't quite understand your last request for clarification. Can you please rephrase?

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I think that the question may not have been posed clearly, but I think you are asking whether a 401(k) Plan has to contain explicit provisions stating that in-service withdrawals are permitted to employees who have reached age 59 1/2. The answer is yes -- the plan typically has to expressly state the terms and conditions under which distributions can be made.

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To further clarify my above reply, I think the confusion is whether you are asking whether a plan is required to permit in-service withdrawals vs. whether a plan that wants to allow in-service withdrawals must contain express provisions to that effect. The answer to the former is no, and the answer to the latter is yes. I think Mike's first answer to your initial question was answering whether a plan had to allow these kinds of distributions, and was not an answer to the question of whether a plan must contain explicit provisions to allow such distributions.

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Sorry I was not clear. I understand the replies now. Thank you all for your help.

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DMK interpreted my response correctly. I see now that the initial request could have been interpreted as meaning "can a participant get money from a plan, while still working, even if a plan doesn't have a provision authorizing such distribution?" The answer to that is no, as DMK pointed out. In interpreted the question to mean: "must a plan provide that a 401k participant can access their money while still working." Thanks for the clarification.

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