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Jeremy, age 53 separated from service in took a non periodic distribution from his 401 (k)...

Jeremy, age 53 separated from service in took a non periodic distribution from his 401 (k) plan, in this situation is the distribution subject to penalty?

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Expert Solution

In a 401(k) plan every eligible employees can make salary deferral (salary reduction) contributions on a post-tax or pretax basis. Employers offering a 401(k) plan can make matching or non-elective contributions towards the deductions.

Basically these are two types of plans

a) Defined contribution plan

b) Defined benefit plan

For this 401(k) plan there are some restrictions regarding distribution of amount they can be withdrawn at some certain conditions only like

a) Upon the employee's retirement, death, disability or separation from service with the employer

b) Upon the employee's attainment of age 59½

c) When the employee experiences a hardship regarding his financial position as defined under the plan, if the plan permits for that

d) Upon the termination of the plan


If the reason for withdrawal is not according to the above mentioned reasons penalties may apply.

In the given case Jeremy aged 53 will be subject to penalty as the person not attained age of 59 as mentioned.

ekkarill92 answered 2 years ago
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