in service distribution when NRA is 55

[Santo Gold]

I have a participant/owner, who is approaching age 55. He plans to continue working for some time, but would like to get his money out of the plan sooner rather than later. The NRA is currently age 65. No hardship exists. He is fully vested.

He is able to take most of his employer PS and match dollars out (24 month requirement), but he is still 4-1/2 years away from getting to his 401(k) and safe harbor contribution accounts. My understanding is that as long as he continues to work, he cannot take an in-service withdrawal of the 401k and safe habror until he hits 59-1/2. Is that correct?

If so, could the plan be amended to reduce the NRA to age 55? And since he will be 55 soon, the plan does allow withdrawal of his entire account balance even if he continues to work after 55.

Does this sound OK?

Thanks

[Kevin C]

It won't work. The distribution restriction on deferrals and SH that prevents in-service prior to age 59.5 is required to have a qualified CODA. 1.401(k)-1(d)(1).

He will have to either terminate employment or terminate the plan (and not have another DC plan for at least 12 months following the distribution) before he can receive a distribution.

[Santo Gold]

It won't work. The distribution restriction on deferrals and SH that prevents in-service prior to age 59.5 is required to have a qualified CODA. 1.401(k)-1(d)(1).

He will have to either terminate employment or terminate the plan (and not have another DC plan for at least 12 months following the distribution) before he can receive a distribution.

But if the NRA is 55, why would we not have a qualified CODA? Same old 401(k) plan, just with an earlier NRA.

[Kevin C]

Because NRA is not a distributable event for deferrals or SH accounts. Look at the distribution restrictions in the regulations.

1.401(k)-1(d) Distribution limitation

(1) General rule. --A cash or deferred arrangement satisfies this paragraph (d) only if amounts attributable to elective contributions may not be distributed before one of the following events, and any distributions so permitted also satisfy the additional requirements of paragraphs (d)(2) through (5) of this section (to the extent applicable) --

(i) The employee's death, disability, or severance from employment;

(ii) In the case of a profit-sharing, stock bonus or rural cooperative plan, the employee's attainment of age 591/2, or the employee's hardship; or

(iii) The termination of the plan.

[K2retire]

Unless, of course, the individual in question actually retires at 55.

[Kevin C]

Unless, of course, the individual in question actually retires at 55.

The distributable event there is severance from employment, not the attainment of NRA.

[Guest DNH]

Unless, of course, the individual in question actually retires at 55.

The distributable event there is severance from employment, not the attainment of NRA.

I have a related question. If a participant is age 59.5 (still working) and the account is 100% vested (PSP), can he take out 100% of his account at any time with no restriction or does money have to be at least 2 years old? AA or document doesn't address and information I've been reading is not clear. And if he does zero out his balance and then the next year a forfeiture is allocated to his account, are there any restrictions from preventing him from taking that amount out? Greatly appreciated. Donna

[K2retire]

He can only do what the document permits. If it's not addressed in the AA, check the base plan document.