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February 23, 2009

Involuntary cash-out

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Definition

An involuntary distribution of a participant’s balance or $5,000 or less, under a qualified plan, 403(b) or 457(b) plan, which occurs when the participant is non-responsive to plan communications.

The plan administrator must provide written notification to the plan participants of its intent to distribute the amount , the tax-treatment of such distribution and rollover options.

Spousal consent is not required for a cash-out

Referring Cite

IRC § 411(a)(11) ;

IRC § 457(e)(9)(A); Treas. Reg. 1.411(a)-11(e),

IRS Notice 2005-05,

Fiduciary Responsibility Under ERISA Automatic Rollover Safe Harbor; Final Rule

Additional Helpful Information

  • Cash-out amounts between $1,000 and $5,000 must be rolled over to a traditional IRA
  • When determining the $5,000 balance, rollovers to the plan, and attributable interest can be disregarded
  • The following methods can be used to locate missing participants
    • Information from the IRS on Contacting Missing Participants or Beneficiaries
    • Social security administration’s Letter forwarding program

Written By

Denise Appleby

Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA resources for financial/ tax/legal professionals. She has over 20 years of experience in the retirement plans field, which includes training and technical consultation.

Denise writes and publishes educational /marketing tools for advisors; available at http://irapublications.com. Denise co-authored several books on IRAs

Denise is a graduate of The John Marshall Law School, where she obtained a Masters of Jurisprudence in Employee Benefits, and has earned 5 professional retirement designations.
She has appeared on numerous media programs, sharing her insights on retirement tax laws.

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