401k matching and withdrawals

[TooPatient]

I already read the plan documents and think I know the answer. I was just hoping for advice from people who may have actually had practical experience with this before.

DH's employer matches 50% for 401k contributions (up to $9000 from them per year). This would be very good as we need to catch up on savings after the struggle we had for a few years.

They DO allow "in service distributions" for those 59 1/2 or older (DH is over 60 now). He also would not get a tax penalty.

I know for hardship withdrawals they do not allow contributions (therefore no matching either) for 6 months after. It is my understanding that this is an IRS rule. Would that be the case for "in service" also? I see no mention of it and the other is covered in detail so I don't think this is the case.

I want to contribute as much as we can to savings (especially given the matching!) but have been hesitant because I worry about stuff coming up and needing access to the extra money we would be putting in and that messing up his contributions for the rest of the year.

Anyone ever deal with this before?

 

[MollyMalone]

There's no IRS rule/regulation that prohibits contributions in the wake of an in-service withdrawal. A company's plan, however, may impose such a moratorium. Although your Summary Plan Description doesn't suggest that's the case for your DH's 401k, I'd still reach out to the plan administrator for confirmation -- and ask if there's anything else you should be considering/know.

E.g., last month, I wanted to do an in-service withdrawal of 1/3 of the holdings in my current plan, with that being rolled over into the 457 plan I established when I was a government employee; the 457 plan now has some additional investment options that appeal to me, aren't available under my current employer's 401K plan. But it turns out in-service withdrawals from my current 401K are limited to the vested employer contributions, which amounted to roughly 20%.

I remember you and your DH had some really rough financial times awhile back, so it's wonderful to hear that because of all your tireless efforts, you're now in a position to contribute more to the 401k -- very happy for you two!

 

[Puppmom]

Toopatient, it would be very unusual for a plan to impose the contribution suspension after an in-service withdrawal at age 59.5. If they did it would be reflected in the document and/or paperwork. The idea behind the suspension when you take a hardship withdrawal is you've had an immediate and heavy financial need. So, in theory, can't afford to contribute. And it discourages folks who aren't really enduring hardship circumstances. The reasons a plan would allow inservice at 59.5 is that's when the 10% penalty drops off and some employees scale back on work and need to supplement their income or just want to diversify outside the Plan. You will pay 20% withholding up front to cover income taxes. That'll be trued up when you file your tax return depending on your actual tax bracket etc.

 

[Puppmom]

PS - that's a very generous match! Keep contributing as much as you can!