Case of the Week: When Are 401(k) Safe Harbor Contributions Distributable?

The ERISA consultants at the Retirement Learning Center Resource regularly receive calls from financial advisors on a broad array of technical topics related to IRAs and qualified retirement plans.

A recent call with an advisor in Ohio is representative of a common inquiry involving 401(k) safe harbor employer contributions. The advisor asked:

“My client is age 47. Can he take a distribution of his safe harbor 401(k) plan matching contributions while he is still working?”

Highlights of Discussion

No, safe harbor 401(k) employer contributions — either matching or nonelective — may not be distributed earlier than separation from service, death, disability, plan termination, or the attainment of age 59½ [IRC §§ 401(k)(12)  and 401(k)(2)(B)]. This would include the earnings on such amounts as well.

IRS Notice 98-52, Section IV, H provides further clarification on the distribution of safe harbor 401(k) employer contributions: “Pursuant to § 401(k)-(2)(B) and § 1.401(k)-1(d)(2)(ii), hardship is not a distributable event for 401(k) safe harbor contributions other than elective contributions.”

The distribution rules for safe harbor 401(k) employer contributions are different (more restrictive) than those for non-safe harbor 401(k) plans, where it may be possible, under the terms of the plan, to take an in-service withdrawal of employer matching or profit sharing contributions prior to age 59½.

Safe harbor 401(k) employer contributions must be fully vested when made. They cannot be subject to a vesting schedule as is the case with non-safe harbor 401(k) employer matching or profit sharing contributions.

The bottom line is to always refer to the provisions of the plan document or summary plan description for a definitive answer on when plan assets are distributable.

Conclusion

The IRS’ distribution rules for safe harbor 401(k) employer contributions are different (more restrictive) than those for non-safe harbor 401(k) plans. The soonest that a working participant would be able to request a withdrawal of safe harbor 401(k) employer contributions would be age 59½.

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“Case of the Week” is the winner of an APEX Award for Publication Excellence for 2017.

Any information provided is for informational purposes only. It cannot be used for the purposes of avoiding penalties and taxes. Consumers should consult with their tax advisor or attorney regarding their specific situation.

©2017, Retirement Learning Center, LLC. Used with permission.

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