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Re-contributing 401k distribution within 60-days


MGOAdmin

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I know you are only permitted to take a distribution from an IRA and re-contribute it back within 60 days to avoid taxes 1 time per year.

Is there a limit on how many times this can be done per year in a 401k plan? I would think there are no limits since I can take multiple distrubutions from a 401k plan (assume age 59.5) within a given year, and as long as those distributions are rolled into an IRA within 60 days, it is not taxable ignoring the taxes that were withheld on the initial distribution.

I have a potential client that took 5 distributions (taxes withheld) from his 401k plan in 2015, but paid all disitrubitons back with 60 days. I beleive this is OK, please let me know your thoughts.

Thanks

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Sure, the 401(k) doesn't have such a rule. This individual could've easily taken a loan from a 401(k), if the plan allowed for loans. The IRA, as we know, does not allow for loans. What the rule does is prevent the series of distributions from the IRA to have an effect of a loan.

So, there's no such rule imposed by statue to a 401(k) plan. A plan, however, may be written to limit the number of distributions during a year; but that would be up to that individual plan.

Good Luck!

CPC, QPA, QKA, TGPC, ERPA

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I have the same thought as mphs77....are they rolling each distribution to an IRA or actually returning them back to the plan as a rollover in? If so, when they are taking the distribution who is the payee? Is withholding being withheld? Who is having to pay all the administrative fees? Hopefully the specific participant!

Something sounds very smarmy about this and it just doesn't pass the smell test for me, but what do I know? (and it's been a very bad work day....the one that says stick a fork in me, I'm done...so this situation would be one I would try to correct in the next round of plan amendments if possible!)

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