Certified Plan Sponsor Professional (CPSP) Practice Exam

Under what circumstance can a participant take an in-service withdrawal of salary deferral contributions?

1. After termination of employment

2. If participant has a hardship

3. After attaining age 59.5

4. When the account balance reaches $50,000

The correct answer is: After attaining age 59.5

A participant can take an in-service withdrawal of salary deferral contributions upon reaching the age of 59.5. This provision is designed to allow individuals to access their retirement savings without incurring the additional penalty that typically applies to early withdrawals. Employers and plan administrators recognize that individuals may want access to their retirement funds for various reasons as they approach retirement age, and allowing in-service withdrawals at this age provides greater flexibility in financial planning. In contrast, the other circumstances listed do not typically allow for in-service withdrawals of salary deferral contributions. For instance, while hardship withdrawals might be permitted, they usually apply only to contributions that are not salary deferrals and are generally subject to specific criteria and documentation requirements. Additionally, someone who has terminated employment would not be categorized under in-service withdrawals, and the account balance reaching a certain threshold does not itself grant access to funds.