In-service Withdrawals from Qualified Plans

Rules for Access to Assets to Convert to Roth IRAs

In-service Withdrawals from Money Purchase or Defined Benefit Pension Plans

In-service withdrawals from these plan types are typically permitted at normal retirement age (NRA) only (e.g., age 65).  However, post 2006, the law now permits in-service distributions at age 62 even if NRA greater than 62.  Lastly, withdrawals due to a hardship prior to age 62 are not permitted.

In-service Withdrawals from Profit Sharing Plans 

The law permits withdrawals from an employer funded Profit Sharing Plan and 401(k) matching accounts only (not employee elective 401(k) accounts) while an employee remains employed (“in-service”) after a stated event such as:

  • After “x” years funds have accumulated (“x” must be > 2years)
  • After a stated number of years of service or participation in plan (typically at least 5 years) 
  • Due to disability, illness or financial hardship (more liberal than “k” hardship permitted)

In-service Withdrawals from 401(k) Accounts

The law permits withdrawals from an employee elective deferral, and employer qualified nonelective and matching contribution accounts (QNECs and QMACs) while an employee remains employed (“in-service”) due to:

  • The individual plan participant’s attainment of age 59½
  • A financial hardship occurs as defined in the 401(k) rules

Commentary  The information provided above outlines what the law permits.  Be mindful that the particular plan in which an individual participates must permit these actions before an in-service withdrawal is permitted.  This information is not intended to facilitate the abusive actions actions discussed below; rather, it intends to assist individuals and their advisors in the event that formal retirement or estate planning determines that conversion of pre-tax assets to a Roth IRA is advantageous to the individual or his/her estate. 

Watch-out!  ERISA law firms, such as Reish and Richter (, report that they “are seeing an increasing number of claims filed against advisers…  both as civil lawsuits and FINRA arbitrations.”  Mr. Reish writes in his ERISA Controversy Report (October 2009), that they’ve seen or heard of claims that result from an adviser “encouraging employees to take early retirement or in-service distributions from retirement plans, and then investing the money in alternatives that are significantly more expensive than the investment expense in the plan.” 

Copyright © 2009 Barry R. Milberg   All Rights Reserved


  • Would you please site the specific IRC sections that authorize the in-service withdrawals from 401(k) plans? I have been trying to clarify this for some time and have had difficulty locating the precise legal authority for it. Thanks.

  • Barry says:

    There are basically three types of “in-service” withdrawals from the 401(k) portion of a profit sharing plan or an ESOP permitted under the law. Withdrawals due to: 1) a financial hardship [IRC §401(k)(2)(B)(i)(IV)], 2) attainment of age 59 1/2 while still working for the employer [IRC §401(k)(2)(B)(i)(III)]; and 3) diability [IRC §401(k)(2)(B)(i)(I)]. Be mindful that these are the provisions that the law permits employers to include in their plan only. Therefore, many plans may not permit these actions since adding such provisions to an employer’s plan is permitted by law but not required.

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