Advanced Underwriting Consultants

Question of the Day – January 3

Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax questions posed by producers.  Here’s the question of the day.

Question: My client wants to know if he can take money out of his 401K plan and roll it over to an IRA without leaving his job.  Can he?

Answer: Maybe, depending on what the plan document says.

Some 401K plans allow for participants to withdraw funds from their account if the participant has financial hardship.  Some plans also allow for in-service loans.  However, neither hardship withdrawals nor loans are eligible for rollover.

It is possible for plans to allow for non-hardship in-service distributions.   The law allows a plan to permit in-service distributions of employer matching contributions (including earnings on them) and employee after-tax contributions (plus earnings on them) prior to age 59 ½.  Once the employee reaches age 59 ½, employee pre-tax, employer non-elective contributions and designated Roth contributions—plus earnings on those—may also be made available.

Just because the law allows a plan to offer in-service withdrawals doesn’t mean that the plan permits them.  The plan document and plan administrator must be consulted to find out what is possible.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.