Can I move my 401K?

[Guest Carl C]

Our company started a 401K plan in May 2000. I have stopped making contributions to the plan, and my employer has discontinued making matching contributions because of a decline in business. For a number of reasons, no one has been particularly happy with the plan, and many of us would like to move our money.

I have both Roth and regular IRA accounts with another broker, and would like to know if I can rollover the funds of the 401 to either IRA account. I'd guess that since the 401 contributions were pre-tax, any rollover would be to the regular IRA. The fact that Congress may increase the maximum IRA contributions to $5000 makes this move, if possible, even more compelling.

So, can I close out the 401 and roll it over to either IRA account?

Carl C.

[MGB]

There must be a distributable event and the plan must have a provision for the distribution.

1. Terminate employment. Although this is a legal distributable event, the plan must provide for a distribution upon termination. Some plans may "lock up" your money until retirement age.

2. Terminate the plan. The employer must do this, you cannot.

Other than that, the money must stay in the plan.

The amount of a rollover upon the above events in no way interacts with the maximum allowable new contributions to an IRA.

[RCK]

In general, MGB is right There are more possibilities though. The obvious ones like loans and hardships undoubtedly would not help in this situation. Similarly, death disability and attainment of age 59 1/2 probably don't help much.

The only possibility left seems that plans can allow the distribution of funds that have been in the plan for as few as 2 years. It is something that the sponsor has to decide to do, and it is a pretty unusual feature, but maybe your plan allows that or the sponsor might be willing to amend.

RCK

[Guest PAL100759]

RCK -

I don't follow your thoughts on distributing money that has been in the plan for "as few as two years". Unless I've missed some (significant) regulations, I don't know of any authority that permits the distribution of 401(k) money except on account of:

1. Separation of service (termination, death, disability, retirement)

2. Attainment of age 59 1/2

3. Financial hardship

And, the plan document would need to provide for some of these, such as hardship and age 59 1/2 distributions. Finally, as MGB points out, the money could be distributed if the employer were to terminate the plan (and not set-up a successor plan). Are the rules you're looking at for company contributions?

PAL

[Guest JimJ]

I thought the "two year" rule only applied to PS contributions. I am not sure but have heard of this before. Again, it's rare and I was told was only applicable to PS money.

The only other possibility I could think of would be an in-service withdrawal. Most of the time this is only available to participants over a certain age (I.e. - 59 1/2) and with some length of service (I.e. - 10 years), but if availalbe should be spelled out in the plan document.

[RCK]

My answer was based on reg 1.401-1(B)(1)(ii) and Q 14.44 and 14.45 of the 1999 401(k) Answer Book (old, but still relevant in this case). It does apply only to 401(k) plans that are part of a Profit Sharing Plan or a Stock Bonus plan, but my experience is that most 401(k) plans are based on PS plans.

The 401(K) Answer Book does include a reference to a very old Rev Ruling that allowed "withdrawal of all funds", but it is a pre-Erisa Ruling.

The bottom line in the question originally started by Carl C is that he is very likely out of luck, because this 2 year rule (if it is indeed still valid) is extremely rare, may not apply to ee deferrals, and certainly is not going to be included in his plan.

RCK

[MGB]

Actually, the two-year rule is not rare in "real" profit sharing plans (i.e., plans that were set up as profit sharing rather than just as a vehicle for a 401(k) provison). I have worked at two large employers that had this rule.

It does not apply to elective deferrals under 401(k). It only applies to profit sharing contributions.