Most plans allow for distributions as soon as possible following your separation from service. However, if your vested account balance is greater than $5,000, you are not required to take a distribution. A plan can delay distribution until your normal retirement date. When you are entitled to payment, you receive all of your contributions and earnings plus the vested portion of the company's contribution. Generally the full value of your account, including your contributions, plus any company contributions and all investment earnings, will be paid to you if:

• You retire according to the provisions of the Plan,
• You become disabled while in service, or
• You die while in service. In this case, your beneficiary will receive the full balance of your account.

If you leave employment and have not reached the age of 70 ½ you have the option of leaving your account with your former employer's plan, providing there is an account value of $5,000 or more. There is no requirement for you to close the account as long as your former employer continues to sponsor the plan.

If for some reason your former employer were to stop sponsoring the 401(k) Plan, you could either take a lump sum distribution or roll the account over into your current employer's Plan or a rollover IRA. If you take a lump sum distribution you would have to pay tax on the entire amount. If you rolled the money over to your current employer's plan or to an IRA you would not have to pay taxes until you ultimately withdraw the money from that plan.

It would be a good idea to contact appropriate tax/estate planning and investment professionals for advice in this situation.

Yes, the Internal Revenue Code provides for "required minimum distribution" (RMD). The Internal Revenue Code established these minimums to ensure that you actually use your Employer Sponsored Retirement Plan account balance for retirement (and not, for instance, to pass it onto your heirs). Unless an earlier date is specified by your plan, you must take your first withdrawal (RMD) from your account by April 1 of the year following the calendar year in which you reach 70 ½, or April 1 of the year following the calendar year in which you retire, whichever is later. However, if you are a five percent owner of your employer, you must begin taking distribution by April 1 following the year you reach age 70 ½ even though you are still employed.

In each subsequent year, the minimum required distribution must be made on or before December 31. If you do not take an RMD from your retirement account each year, the Internal Revenue Code imposes a 50 percent penalty tax on the amount that should have been withdrawn. This tax is in addition to regular income taxes.

To calculate your RMD, you only need your current age, your retirement account balance at the end of the prior year, and the new Uniform RMD Table. You divide your account balance at the end of the previous year by the distribution period for your age shown in the table. The result is the minimum amount you must withdraw from the plan.

For example, if your account balance at the end of 2001 is $100,000 and your age is 72 in 2002, your RMD for 2002 is $3,906.25 ($100,000/25.6).

There is one exception. If your spouse is the sole beneficiary and is more than ten years younger than you, you may use a joint life expectancy table instead of the Uniform Table. This will result in a lower RMD amount.

 

Uniform Required Minimum Distribution (RMD) Table

Age	Distribution Period	Age	Distribution Period
70	27.4	93	9.6
71	26.5	94	9.1
72	25.6	95	8.6
73	24.7	96	8.1
74	23.8	97	7.6
75	22.9	98	7.1
76	22.0	99	6.7
77	21.2	100	6.3
78	20.3	101	5.9
79	19.5	102	5.5
80	18.7	103	5.2
81	17.9	104	4.9
82	17.1	105	4.5
83	16.3	106	4.2
84	15.5	107	3.9
85	14.8	108	3.7
86	14.1	109	3.4
87	13.4	110	3.1
88	12.7	111	2.9
89	12.0	112	2.6
90	11.4	113	2.4
91	10.8	114	2.1
92	10.2	115 and over	1.9

Like loans, hardship withdrawals are allowed by law, but your employer is not required to provide for them in your plan. If your plan allows for hardship withdrawals, you can qualify only if you need the money for one of the following reasons:

1. Payment of medical expenses incurred by the participant, his spouse or dependents or costs involved in obtaining medical care for such persons;
2. Purchase of a principal residence of the participant;
3. Payment of tuition, related educational fees and/or room and board expenses for the next twelve months of post secondary education for the participant, his spouse, children or dependents;
4. Payment of amounts necessary to prevent the participant's eviction from his principal residence or foreclosure on the mortgage of such residence.

The test to determine necessity requires that:

1. The withdrawal must not exceed the amount necessary to satisfy the financial need;
2. All withdrawals and nontaxable loans from all plans of the employer must have been made;
3. All plans of the employer must provide that the maximum elective deferrals that a participant can make in the following taxable year is reduced by the amount of elective deferrals in the taxable year of the hardship distribution;
4. All plans of the employer must provide that a participant is prohibited from making elective deferrals for at least six months after receipt of hardship distribution.

Hardship distributions are subject to income taxes plus the 10% early withdrawal penalty tax.

Keeping your money tax-deferred should be your most important objective. Hardship withdrawals are not treated as an eligible rollover distribution, therefore when you take a hardship distribution there is no way to recapture the tax-deferred status. Loans taken from the plan on the other hand are required to be repaid to the plan, therefore maintaining the tax-deferred status of these monies.

To be eligible for a hardship withdrawal, most plans require that you first make application for all other withdrawals or loans from all plans of the employer. If your plan provides for loans, there are two issues to consider. First, the regulations provide that any available loan not serve to merely increase the extent of the hardship and secondly, the loan may be denied based on the credit worthiness of the participant. If repayment appears to be unlikely, the loan can be denied which would open the door for a hardship distribution.

Yes, any money withdrawn from your plan under the hardship withdrawal provisions are subject to ordinary income taxes as well as the 10% early withdrawal penalty, unless an exception applies.

Most plans do not allow in-service withdrawals other than for hardship. However, if a plan so provides, vested employer contribution accounts can be distributed prior to separation of service generally under one of two following ways:

1. Participant has completed a required number of years in the plan. (5 years, 10 years, etc.), or
2. Participant has attained a required age. (59 ½ or 65)

In-service distributions are subject to ordinary income taxes and a 10% penalty tax, if you are less than age 59 ½.

Generally all distributions from qualified plans are included in your gross income when received. If property is distributed (company stock, plan assets etc.,) the amount included in your gross income is the fair market value on the date of distribution. You may postpone the taxation of certain distributions by rolling over or directly transferring an Individual Retirement Account (IRA) or to another qualified plan.

Retirement plans are designed to help you save for retirement. If a distribution is taken prior to age 59 ½, there is an additional early withdrawal penalty tax of 10%. There are several exceptions to this penalty tax, before taking a distribution you should seek professional tax advice.

Some plans allow for after-tax contributions. After-tax contributions are monies you contribute to the plan after paying ordinary income taxes. Since you have already paid taxes when you contributed these monies you do not pay taxes a second time when withdrawn, although earnings are taxable.