Certified Plan Sponsor Professional (CPSP) Practice Exam

Can plans allow in-service distributions of employee salary deferral contributions at age 50?

1. Yes

2. No

3. Only if the employee has a pending hardship

4. Only for certain types of plans

The correct answer is: No

In-service distributions of employee salary deferral contributions typically have specific rules governing when they can occur. Generally, for 401(k) plans and similar retirement plans, the Internal Revenue Code does not allow for in-service distributions of these contributions until the employee reaches age 59½, regardless of any age milestones such as reaching age 50. While some plans may allow for in-service distributions under certain circumstances, such as significant financial hardship or reaching specific ages for other types of contributions, employee salary deferral contributions usually have this restriction in place to encourage continued saving for retirement. Therefore, the assertion that such distributions are permitted at age 50 is not supported by the standard regulations and practices governing these plans. This understanding is crucial, especially when evaluating the overall structure and compliance of retirement plans involved in managing employee contributions and distributions.