What is the earliest a qualified plan can allow in-service withdrawals

[John A]

Can a profit sharing plan allow in-service distributions immediately (no matter how long the funds have been in the plan and no matter how little service the participant has) for everyone in the plan by specifying that in-service distributions will be available upon attaining age 1 (or 18)? What would prevent this?

[KJohnson]

I don't know what would prevent it. I used age 38 once for one plan and received a favorable determination letter (I even flagged the age in the cover letter). Of course if it has a (k) feature you are stuck with 59 1/2 for electiive deferrals.

[MGB]

I was once a consultant for one of the largest benefits consulting firms in the country. Their plan allowed in-service withdrawals at any time.

I needed cash flow for a separate business I owned and did not want to save for retirement at the time. However, I didn't want to lose out on any matches (they matched either after- or pre-tax deferrals). So, I contributed after-tax money and withdrew it every January 1.

At one time, the IRS had a "soft" rule that profit sharing money should stay in for at least two years, but it was more of a safe harbor default rather than a strict rule. It was seen as a discrimination issue and as long as highly compensated were not abusing the put in/take out feature, you could allow withdrawals sooner.

[KJohnson]

I still don't believe that you can have in-service distribtuions at any time. I think you are limited to a stated age, two year "seasoned money" or five years of participation per Rev. Rul. 68-24, 71-224, 71-295, and 73-553

You may also want to look at this:

http://www.benefitslink.com/cgi-bin/qa.cgi...d=148&mode=read

[Kirk Maldonado]

I agree with K Johnson.

I hope that the other plans with more liberal withdrawal rules have favorable determination letters.

[mbozek]

IRS regs permit withdrawal of employer contributions after a fixed number of years (at least 2) or a the attainment of a stated age or the occurrance of a specific event such as termination, death, etc. Reg. 1.401-1(B)(1(ii), RR 71-295. However employee contributions can be withdrawn immediately after contribution but if there is an employer matching contributions the employee's right to withdraw his own contributions must be subject to substantial limitations to pervent manipulation of the allocation. Rev. Ruls 72-275, 74-55 & 74-56

[John A]

KJohnson, Kirk Maldonado:

Is there any restriction on what the stated age can be? So could the only restriction be attainment of age 1?

[Kirk Maldonado]

Not that I'm aware of. But I would get a determination letter if you were going to use an age lower than 55 (or maybe 50).

[KJohnson]

My reaction is the same as Kirk's which is why I went for a letter at 38.

[Guest Fuzzy]

What about a safeharbor 401K. ER is making a 3% annual non-elective contribution and has an EE age 72, that just became an eligible participant. Can she take all of the EE's & ER's money during the same year of eligibility? Doesn't she have to make a RMD? Isn't the RMD based on the entire balance?

[Tom Poje]

re: Safe Harbor

Notice 98-52, IV H

is clear (amazing, you can't even question this one)

"...must not be distributable earlier than separation from service, death, disability, an event described in 401(k)(10), or, in the case of a profit sharing plan or stock bonus plan, the attainment of age 59 1/2.....hardship is not a distributable event for contributions other than elective contribution."

in the case of the person who is 72, what does the document say?

Under the new rules, there is no minimum distribution if the person is active, unless the document retained such language.

..................

As for other comments on how much time the $ must be in, This was in the C-4 current topics 6th edition (section on insurance)

Rev Ruling 54-231

"....distributing funds accumulated after a fixed number of years, the attainment of a stated age, occurance of some stated event such as illness, disability, retirement, death, or severance from employment. the term 'fixed number of years' is considered to mean at least 2 years. accordingly, a plan that permits...withdrawal of the employer's contribution 18 months after it has been made...is not a profit sharing plan..."

[KJohnson]

Tom,

Just so we are clear, do you agree that a plan that had a "stated age" provision of 45 could allow an in-service distribution (of $ other than elective deferrals--and those $ treated like elective deferrals) even if the $ had been in the plan for less than 2 years?

[Tom Poje]

yes maybe so. that is the best I can answer.

It is so cold even here in Florida I think my brain is freezing up its thinking process.

If the plan is non pension, then I would say the answer is yes.

If the plan is a pension plan then I would say the answer is yes only if 45 is the normal retirement age and that NRA is reasonable for that particular industry.

I think the pension industry must be around 40 before the mind goes (or the hair), but I don't think the IRS recognizes that.