In-Service Distributions of 401(k) Contributions

[Stash026]

I've gotten conflicting answers to this, so I wanted to get some clarity.  Does the IRS allow for in-service distributions of 401(k) contributions under age 59.5?  Specifically, the person is trying to roll the money into an IRA.

The current Plan Document does not allow it, but the employer is willing to amend it if allowed.

If someone direct me to exactly where in the code it says it, I'd appreciate it!  

[Belgarath]

No can do, generally. See 401(k)(2) and 401(k)(10).

[Tom Poje]

well, it depends on what type of contribution you are talking about.

deferrals, as Belgarath pointed out are generally forbidden. Profit sharing contributions could be rolled

1.401-1(b)(1)(ii) ...distributing the funds accumulated after a fixed number of years, attainment of stated age..

the IRS indicated at least 2 years for such contributions...etc.

you at least indicated an intention as a rollover so avoidance of 10% early withdrawal if it is profit sharing

 

for exciting and thrilling reading here is a file  (from http://benefitsforward.com/wp-content/uploads/2009/01/distributionoutline2008.pdf)

in service distributions.pdf

[Stash026]

Thanks guys.  The participant was looking to roll out his 401(k) deferrals.  This confirms it.

Thanks!

[Stash026]

A little bit more, it's the person's tax adviser who is claiming that:

"while the word “distribution” can encompass the term “roll-over,” the IRS are referring to withdrawals, and there are no penalties for doing an “in service roll over” and it’s really the company plan itself that may or may not put limitations on that"

I don't see how it holds weight and the adviser is just trying to get his hands on the money.  Does anyone disagree?

 

[Tom Poje]

I agree it sounds like advisor wants to get his big (insert comment) hands on the money

 

on the handout it has

C. Section 401(k) Plans

Contrary to the general rules discussed above which allow in-service withdrawals under a

profit sharing plans, employee elective contributions may generally not be distributed inservice

but rather, are subject to very restrictive withdrawal rules. This means that even

where the Section 401(k) plan is actually a feature of a profit sharing plan, as most are,

the participant’s own contributions are subject to much more restrictive distribution rules

than those that apply to the employer contributions under the underlying profit sharing

portion of the plan. Specifically, distributions attributable to an employee's Section

401(k) contributions (including both before-tax and now Roth after-tax contributions)

may not be made before the participant's retirement, death, disability, severance from

employment, attainment of age 59 1/2, (but only if the plan so provides) or, hardship,

(again, but only if the plan so provides). [IRC § 401(k)(2)(B)]

[Larry Starr]

11 hours ago, Stash026 said:

A little bit more, it's the person's tax adviser who is claiming that:

"while the word “distribution” can encompass the term “roll-over,” the IRS are referring to withdrawals, and there are no penalties for doing an “in service roll over” and it’s really the company plan itself that may or may not put limitations on that"

I don't see how it holds weight and the adviser is just trying to get his hands on the money.  Does anyone disagree?

 

Utter nonsense!