TWM ERISA Attorney

While there are special rules for distributions of 401(k) pre-tax contributions, most 401(k) plans are also profit-sharing plans, and profit-sharing plans have additional rules that apply to distributions of amounts that are not pre-tax (elective deferral) contributions. In general, the definition of a profit-sharing plan in the regulations allows amounts attributable to contributions other than elective deferrals to be distributed after a fixed number of years, the attainment of a stated age, or upon the prior occurrence of some event such as layoff, illness, disability, retirement, death, or severance of employment. Treas. Reg. §1.401-1(b)(1)(ii). Rulings from the IRS have interpreted this to mean that a plan may allow amounts that are not attributable to elective deferrals to be distributed after they have remained in the plan for at least two years or the employee has participated in the in the plan for at least five years. Rev. Rul. 54-231, Rev. Rul. 68-24, Rev. Rul. 71-295. These rulings are based on the definition of a profit-sharing plan in Treas. Reg. §1.401-1(b)(1)(ii), which generally allows for the funds accumulated under the plan to be distributed after a fixed number of years.

401(h) accounts are something of a niche practice these days. Assuming the 401(h) account is associated with your pension plan (you need to be mindful of any DC funding implictions if you or your spouse are "key employees") and you are able to fund it (subject to a subordination limit of 25% of pension contributions once the 401(h) account is established), the 401(h) account assets can be used to pay or remiburse for medical plan expenes including pre- and post-Medicare expenses and related premiums.