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If an employee becomes disabled but has not separated from service, is this a distributable event?

In other words, does the "disabled" employee have to be terminated in order to receive a distribution from the plan?

Other info: The employee is an owner/partner and has not severed his partnership with the plan sponsor. The plan is a 401k plan. The participant is already 100% vested. The participant does not meet the plan's in-service age requirement and already has an outstanding loan. The plan does not allow hardship withdrawals.

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Depends on the type of plan and what is the plan document. For 401(k) elective deferrals, Treas. Reg. 1.401(k)-1(d)(1)(i) lists an employee's disability as a permissible distributable event. This is a separate distributable event from "severance from employment," so there must be some circumstances when one has a disability but not a severance from employment or else the wording is redundant.

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Additionally, for it to not be subject to the 10% early w/drwl penalty under Section 72(t), it has to meet the definition of disability in Section 72(m)(7). That definition is basically "total and permanent". Some plans use an external qualification, such as approval under a long-term disability plan or for Social Security disability.

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Depends on the type of plan and what is the plan document. For 401(k) elective deferrals, Treas. Reg. 1.401(k)-1(d)(1)(i) lists an employee's disability as a permissible distributable event. This is a separate distributable event from "severance from employment," so there must be some circumstances when one has a disability but not a severance from employment or else the wording is redundant.

Disability should be defined in the plan document.

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