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Asked 9/25/2011

Lump sum cash distribution

I have a 401k from the first year I worked for my employer, they then went union and I now have my pension with them, I still have this 401k 25 years later which has had no contributions since 1985. I want to take a lump sum distribution, I'm aware of the tax liabilities, I just want to know if I can close this 401k or not?

 
 
 
 
 
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Answer 1/2 - Submitted 9/25/2011

It depends on whether or not you are considered to be "terminated" from the non-union plan. I would guess that you are just ineligible, not terminated, thus you would not qualify for a lump sum distribution since you still work for the company.

If, for some reason, you were considered terminated (such as the union is a separate legal entity so you actually stopped work with the initial company and went to work for another company with the union) then you likely could take a distribution.

The only way to tell will be the check with your plan administrator, or that employer. You just need to ask them if you are eligible for a lump sum distribution. I would guess not, but you never know how this transition was handled so many years ago.

Another option for you might be to rollover the money into your current plan to get it all in the same place. That is another question you could ask them.

 
 

Answer 2/2 - Submitted 9/25/2011

You can ask your union and your employer, but your chances are not very good. For a distribution to be made from a 'qualified plan' such as a 401k plan, you need to have a "distributable event". For most people, it is when they terminate from the company, usually when they quit, get fired, or are laid off. Even if a company is sold, the IRS applies the 'same desk rule' - if you have essentially the same job, same workplace, etc., then you did not separate from the company.

You might be able to transfer your 401k account balance into your union plan, but I wouldn't recommend it: you have control of your 401k account, because you select the types of investments in your account. You have no control over your union plan assets, and many union plans are underfunded - not a big sign of trouble, but it's not the type of place you choose to put your money.

 
 
 
 
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