New 401k- Client Changes Mind

Hi,

A client's advisor convinced her to start a 401k plan. She made 2 contributions to it then decided that she didn't want it. I tried to tell her that it will now have to go through the termination process but she is just demanding that her contributions be returned to her.

Am I wrong in telling that as well as she will get taxed and penalized on her distribution? Or is there another way?

TIA

You are not wrong

The client will only get taxed and penalized if she does not roll over the distribution.

Have you spoken to the advisor who convinced her to start the plan in the first place? It sounds like the client just has cold feet about the plan; she might need some reassurance that everything is going to be ok, and the advisor (who she clearly trusts) might be the right person to do it.

I am going back to the advisor. He just seems to feel we can just back out the money and pretend no plan ever happened!

If the advisor is associated with a securities broker-dealer, consider whether you might politely invite the advisor to consider how a never-mind or undo could call into question the advisor’s conduct.  (At many broker-dealers, an undo soon after setting up an account would trigger the compliance office’s investigation into whether the advisor had followed sales-practices and disclosure protocols.)

About a different path, will the plan’s directed trustee or custodian allow a payment without a written direction or instruction that shows a satisfactory reason for the payment?