in service non-hardship withdrawal
I was on a webinar with one of the bigger annuity Field Marketing Orginizations (FMO) and the speaker who has a PHD in economics was talking about being able to move
money from your 401k before 59 1/2 through what he called an “in service non-hardship withdrawal”. This sounds like a great “hidden” feature that could help a lot of people
protect their retirement assets by transferring into a safe annuity without penalties. Is there such a creature? If so, how does it work and how could an annuity agent go to
employers with the idea?? your comments are appreciated. THANKS
Permalink Submitted by mk foss on Mon, 2009-07-06 16:58
A hardship withdrawal is a type of inservice distribution available to 401k participatns who have an actual hardship. They must show a hardship and that they cannot obtain funds in any other way. A hardship withdrawal cannot be rolled over tax free and is subject to the 10% penatly.
The circumstances that the IRS agrees are hardships are (a) medical expenses (b) direct cost of principal residence purchase(c) payments for post secondary education (d) payments to prevent eviction or foreclosure and (f) funeral expenses and (g) expenses needed to repair casualty damage to the principal residence.
A hardship withdrawal is fully taxable, subject to penalty and prevents the employee from making further deferrals into the plan for 6 – 12 months. I can’t see any attraction in requesting one unless you REALLY have a hardship.
Permalink Submitted by mk foss on Mon, 2009-07-06 17:07
As I posted this, I saw that “non-hardship withdrawal” was the key item. The reason that one has hardship withdrawals is that the contributions deferred by the employee can only be withdrawn by a hardship withdrawal – section 401k prohibits distributions before age 59.5 for an employee who has not separated from service. Most of all 401k accumulations are not available as an inservice distribution for employees who have not attained age 59.5.
Permalink Submitted by Joseph Arsenault on Mon, 2009-07-06 17:25
Non-elective contributions are sometimes allowed to be distributed. This requires separate record keeping and provisions in the plan which your rarely see. Also, the amount of money is usually insignificant unless your dealing with an ESOP.
This is often referred to as the “hidden escape hatch” and IMO it is more of a marketing ploy for FMOs to get your attention than actually add volume to your business.
-J