I have an appointment this coming week with a bankruptcy lawyer. I would have taken an in-service withdrawal from my 401(a) retirement savings account under a financial hardship, but when our plan was setup, this option was not made available. I need to be seperated from employment for at least one year or be of 59 1/2 years of age. My question is: Can I have a trustee order the funds be released to repay my debts under Chapter 13 rather than a monthly payment over several months? In the past, employees have offered these funds and granted to satisfy alimony requirements versus a monthly payment.
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Why would you want to
- Create income that is taxable at your marginal rate?
- Create income that is subject to a 10% penalty?
- Convert exempt income into disposable income?
It is not a good idea either during bankruptcy or as an alternative to bankruptcy. -
You could do a direct transfer of the 401K into an IRA and then take distributions as you see fit.Comment
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If his plan does not allow for in service distributions, then he will be unable to move it into an IRA.
Even if the plan did allow for in service distributions, moving it into an IRA and taking distributions would not change the fact that the distributions would be subject to tax at his marginal rate and be subject to a 10% penalty if the distributions did not meet one of the limited exceptions. The distributions themselves might escape the attention of the trustee, but there is a risk they wouldn't and the trustee would move to increase the plan payment.Comment
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