Can a 401(k) plan accept a rollover from a SEP?

[Guest DIGMYDOG]

I have a plan that where all of the sudden I see a SEP money in one of the participant's accounts. Now this participant wants to take a hardship distribution from his SEP rollover. Can a qualified 401(k) Plan accept SEP money? I know it can accept IRA money. Is this pretty much the same thing?

Can someone tell me how this money would be taxed? I believe it is still not considered an eligible rollover, so the participant would not have to have federal income tax withheld. Does the 10% penalty still apply because he is under 59 1/2?

Any guidance on this would be appreciated.

Thank you.

Suzanne

[R. Butler]

Can a qualified 401(k) Plan accept SEP money?

SEP money can rolled into a 401(k) as long as the plan permits it.

Can someone tell me how this money would be taxed?

Hardship withdrawals are not subject to the 20% mandatory withholding. They are subject to the 10% withholding rule. The participant can elect out of the 10% withholding.

Does the 10% penalty still apply because he is under 59 1/2?

Probably. See IRC §72(t)(2) for exceptions to the penalty.

[wmyer]

Are you sure that a hardship withdrawal is required in this situation? Some plan documents will permit in-service distributions of rollover money.