non-hardship inservice withdrawal
http://askmerrill.ml.com/publish/marketing_centers/products/ret020_product/
this website talks about employees taking a non-hardship in-service withdrawal from their 401(k)’s.
Do you know if non-hardship in-service withdrawals are permitted by the IRS from 401(k) plans prior to age 59 1/2? And if these withdrawals are permitted prior to 59 1/2, is there anyway to set it up so the employee does not pay the 10% penalty?
Note: assuming the employee will rollover the 401(k) proceeds to a TIRA
Thanks.
Permalink Submitted by Alan Spross on Tue, 2008-02-26 21:02
These are permitted, but plans that offer it prior to 59.5 are the exception. Most plans like to retain assets, particularly for active employees. The link explains the situation well.
Of course, there is no penalty for a rollover, but a direct rollover would be needed to avoid mandatory 20% withholding since these would all be eligible rollover distributions.
If the employee needs the funds for expenses, they should first transfer them to an IRA, and then set up a 72t plan for substantially equal periodic payments. That would avoid the early withdrawal penalty.