IN-SERVICE 401K WITHDRAWALS
how does it work.
I have a male 58 as of 8/9/2007 who will begin a “transition” on 1/1/2008 for 3 years before he “retires” from the company.
However, he WILL NOT be able to contribute to his current 401k during this “transition period”.
Would this In-Service Withdrawal be appropriate to consider and can he invoke a TRUSTEE-TRUSTEE TRANSFER of his current 401k to an IRA of his choice.
His current 401k Custodian is Fidelity Funds.
Your thoughts?
Please advise.
Also, Can a ROTH IRA be collateralized for a Business Loan.
Thank you.
Emil J. Wansa,CRP,CSA,LCTP,CLTC
(913) 449 4804
Permalink Submitted by Alan Spross on Fri, 2007-08-17 18:35
No IRA can be used as security for a loan, as that is a prohibited transaction that will cause that portion to be treated as a taxable distribution from the IRA.
With respect to distribution from the 401k, plans have very specific guidelines relative to how many hours and the capacity in which work is done to determine whether the employee has separated from service. If he is deemed separated, then the plan must offer a direct transfer of his 401k to an IRA, or because he separated under the age 55 exception, if the plan allows partial distributions, he can take them penalty free until he hits 59.5, and then transfer the balance to a TIRA.
The fact that he cannot contribute to the IRA may not justify the conclusion that he has separated, so he needs to contact the plan administrator for clarification of his status and for any other factors that could cause his status to change, eg working too many hours.
Benefits administrators are seriously considering the issue of phased retirement and what changes to plans are needed. Since they offer the transition option, let’s hope their plans are also up to speed.