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Distributions from 401(k) Plan


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Two situations: (i) the 401(k) plan provides for a segregation of the A/P's entitlement into a separate account; and, (ii) the 401(k) plan does not mention segregation into a separate account but seems to contemplate a direct rollover or distribution to the A/P.  

Question:  Is there any time period within which the A/P musttake a distribution or rollover?  I am looking at 1.409(a)(9)-8 Q/A-6(b)(2) and don't have a clue if it says what I think it says - that the A/P can leave the funds in a segregated account until the Participant reaches age 70-1/2.   

The language is: 

"(2) Distribution of the separate account allocated to an alternate payee pursuant to a QDRO will satisfy the requirements of section 401(a)(9)(A)(ii) if such account is to be distributed, beginning not later than the employee's required beginning date, over the life of the alternate payee (or over a period not extending beyond the life expectancy of the alternate payee). Also, if the plan permits the employee to elect whether distribution upon the death of the employee will be made in accordance with the 5-year rule in section 401(a)(9)(B)(ii) or the life expectancy rule in section 401(a)(9)(B)(iii) and (iv) pursuant to A-4(c) of § 1.401(a)(9)-3, such election is to be made only by the alternate payee for purposes of distributing the separate account allocated to the alternate payee pursuant to the QDRO. If the alternate payee dies after distribution of the separate account allocated to the alternate payee pursuant to a QDRO has begun (determined under A-6 of § 1.401(a)(9)-2) but before the employee dies, distribution of the remaining portion of that portion of the benefit allocated to the alternate payee must be made in accordance with the rules in § 1.401(a)(9)-5 or 1.401(a)(9)-6 for distributions during the life of the employee. Only after the death of the employee is the amount of the required minimum distribution determined in accordance with the rules of section 401(a)(9)(B)."

Thanks for any help.  

David

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So in this case the A/P can't take their money either whenever they want or if/when the participant has a distributable even, or when the participant terminates?  They have to wait until the participant dies/turns 72? 

Is the participant's account so severely restricted?  They can only take the money at retirement or death?  That's harsh!

Check with the document provider for an absolute answer.  You may be looking in the wrong spot.

The Datair Doc I deal with let's the employer to allow distribs to A/P a different times, like attainment of retirement age, severance of employment or even just when the QDRO is effective.

QKA, QPA, CPC, ERPA

Two wrongs don't make a right, but three rights make a left.

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The section 409 regulation means that the AP's account, as a subaccount of the participant's account, is subject to required distributions based on the participant's age/status, not the AP's age.

Food for thought:  The "subaccount" concept is consisitent with IRC section 414(p)(3)(A), and, if extended, suggests that, for example, if the participant takes a total distribution, then the AP cannot continue to retain the "balance" of the original (pre-QDRO) account.  However, there is possibly an inconsistency with that concept (and its extensions) and the ERISA provision that the AP has the status of a beneficiary, which suggests that the AP can maintain a balance in the plan after the participant balance is gone, just as a death beneficiary can maintain an account after the participant's death, subject to the required distributio rules, of course.  The plan can be designed to avoid the interesting questions about limitation by just allowing an AP to have the same rights as a participant with respect to the AP's account, independent of the particpant, except with respect to the required distribution rules as provided in the section 409 regulations.

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On 9/13/2021 at 2:07 PM, BG5150 said:

So in this case the A/P can't take their money either whenever they want or if/when the participant has a distributable even, or when the participant terminates?  They have to wait until the participant dies/turns 72? 

BG5150, I think fmsinc is quoting the reg, not any plan language. The reg just articulates the RMD rule for the A/P, i.e., what the deadline is to satisfy 401(a)(9). Absent unusual plan language, the A/P could also take earlier, e.g. immediately after the QDRO is approved.

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