JG-12 Posted April 18, 2023 Posted April 18, 2023 I can't seem to find an answer to this question. Is electing the source of an in-service distribution a protected benefit? Potentially an optional form of benefit? Or maybe not protected as an "administrative procedure for distributing benefits"? I'm not asking about removing in-service distributions entirely. This is a scenario were currently participants are able to elect which account (e.g. pre-tax, after-tax, rollovers) the distribution comes from. Would it be impermissible to eliminate this election and instead institute a policy whereby any in-service distribution is taken from all accounts on a pro-rata basis?
CuseFan Posted April 19, 2023 Posted April 19, 2023 The plan document should specify what sources are available for in-service distribution and when - for example rollovers may be withdrawn at any time but 401(k) only after age 59 1/2. So I think the individual source in-service distribution provisions are protected. Contribution sources usually have different distribution restrictions/availabilities as well as tax implications when dealing with pre-tax, after-tax and Roth accounts, so regardless of the protection issue I think it would be inadvisable to enact any such pro-rata procedures. That said, for sources with the same availability AND taxability, I think you can take in-service distributions pro-rata provided the document doesn't say otherwise. DMcGovern, Paul I, acm_acm and 1 other 4 Kenneth M. Prell, CEBS, ERPA Vice President, BPAS Actuarial & Pension Services kprell@bpas.com
rocknrolls2 Posted April 19, 2023 Posted April 19, 2023 Building on CuseFan's response, to some extent the Internal Revenue Code dictates how the amount is taxed (or not). Although, if you request a withdrawal from after-tax contributions or Roth 401(k) contributions, and it is not a qualified Roth distribution, then a pro rata amount of taxable earnings and non-taxable contributions will be made. If you request a lump sum, however, the tax law completely dictates the tax treatment of such amounts with all employer contributions, pre-tax 401(k) contributions and earnings being fully taxable and Roth 401(k) contributions, after-tax contributions and earnings distributed in a qualified Roth distribution (generally after age 59 1/2) being tax free.
Recommended Posts
Create an account or sign in to comment
You need to be a member in order to leave a comment
Create an account
Sign up for a new account in our community. It's easy!
Register a new accountSign in
Already have an account? Sign in here.
Sign In Now