401k-Employment Question
Merrill Lynch is handling client’s 401k with his employer. We need to liquidate client’s 401k, but he is still working 5-15 hrs a week. ML won’t allow him to liquidate unless client quits his employment. However, ML will permit a loan for half the amount and then a hardship waiver app to take out the entire amount. I am amazed that client is not permitted to liquidate even with the penalty. Is this correct?
Permalink Submitted by Alan Spross on Thu, 2007-08-23 00:44
My guess is that the plan has been amended such that his reduced hourly schedule still results in active vrs separated status for him. As such, the loan and hardship options still apply.
The hardship distribution is subject to tax and penalty unless he meets an exception, which is usually age, but perhaps he meets some other exception. With respect to the loan amount, if he separates he could expect to have a short time in order to repay it or face a taxable distribution of the loan as well. At least, that might result in the hardship and loan distribution being taxable in different years.
If client is nearing 59.5, he might check with ML to see if the plan allows distributions at that age for in service employees. Some do.