401k in service withdrawal

Submitted by Bill Buxton on Wed, 2018-07-25 20:29

An IRA client of mine took an in-service withdrawal from his 401k plan for the intention of purchasing a home in his native Country of Dominican Republic. Unfortunately, 3 months prior to this distribution he had a kidney replacement, and has been told by his doctor that he cannot travel any time soon. Here is the problem:

The distribution was processed in March, for $250,000. He paid $50,000 in taxes, and the remainder is in his checking account.

Is there any obscure ruling that will allow him to roll the entire $250,000 back into his 401k plan?

Thank you,

Bill Buxton
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Submitted by Alan - IRA critic on Wed, 2018-07-25 21:11

  • https://www.irs.gov/pub/irs-drop/rp-16-47.pdf
  • The above Rev Procedure should do the trick with adequate contact work. Reason f applies as justification. While the entire 250k should be eligible for rollover, he would have to come up with 50k from other funds to replace the withheld amount for which he will get credit when he files for 2018. If cannot replace that money with loan or other proceeds, then he will owe tax and perhaps penalty on that 50k. Perhaps any penalty on the 50k can be offset by high medical expenses if paid this year. 
  • He can check with the 401k plan, but they will probably not accept the funds, and he may have better luck with an IRA custodian as a rollover IRA contribution.

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