401k In Service Non-Hardship Withdrawals
I need the “Final Answer” on this subject. There are numerous insurance and other financial institutions (Merrill Lynch, Allianz to name a few) that explain and solicit [b]In Service Non-Hardship Withdrawals[/b] from 401k plans prior to age 591/2 with some even listing the companies that allow such. These insurance and financial institutions go so far as to provide marketing material, etc. to help the agent or representative accomplish this strategy. BP acutually instructs their employees on the steps to follow. The purpose, of course, is to roll the withdrawal into an IRA. All that seems simple enough, so far.
However, numerous qualified plan professioinals say a non-hardship withdrawal (except for a few exceptions) prior to 591/2 is not allowed and if done would incur taxes and penalties. Further it could render the qualified plan disqualified. Applying this interpretation would mean that any marketing strategy that encourages this would be inappropriate.
Is there clear IRS guidance on this issue and a “Final Answer”? As I see it, these two approaches/interpretations cannot co-exist.
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Permalink Submitted by Bruce Steiner on Tue, 2009-05-26 23:26
See Section 401(k)(2)(B) for when the benefits can be distributed.
Permalink Submitted by Alan Spross on Wed, 2009-05-27 00:03
The section Bruce referenced applies to pre tax salary deferrals. The standards for after tax amounts and company matching contributions and their earnings is pretty much left to the plan provisions. Therefore, if the plan allows it either taxable distributions or direct rollovers of these other components of an account balance can be done in cases where the employee deferral must stay in the plan. You would not expect a plan to relinquish assets or to risk disqualification unless the plan provisions properly provided for such distributions. The majority of plans probably stick to the same restrictions that apply to employee pre tax deferrals.
Therefore, in most cases these solicitations of in service rollovers are probably legal and proper without conflict, and as we know the financial services industry will try to free up assets wherever they can.