401K Trapped in Former Employers Plan

[Scottydogg22]

What is the name of your state? Pennsylvania

Hello, I need some advice on how I might be able to take a disbursement from my 401K despite the company rules. My former company is owned by the company I work for now. The plan rules say that other than a hardship withdrawal I can’t take a disbursement since I didn’t actually “leave the company.” If I would’ve quit and went to any other company I would have been able to withdraw it without any issues. Basically my money is trapped under the old plan, since I cannot roll it over to the new plan. I want to pull the money out to pay off debt and make some other investments. Is there anything I can do to get around the rules the company made for the plan, which I can’t say I even knew about? I’m sure there was some fine print somewhere, but I bet 9/10 people with my former company have no idea this rule exists. I am fully aware of the tax and penalty implications if I were to take a withdrawal.

 

[cbg]

You are not talking about rules the company made up. You are talking about rules that the IRS made up. What qualifies as a hardship withdrawal is set by Federal law. An employer may allow loans but is not required to. Other than that, you may not - repeat; MAY NOT BY LAW take a distribution if you are still employed by the sponsoring employer if you are under the age of 59 and a half.

No. There is no way to get around the rules.

 

[Scottydogg22]

You are not talking about rules the company made up. You are talking about rules that the IRS made up. What qualifies as a hardship withdrawal is set by Federal law. An employer may allow loans but is not required to. Other than that, you may not - repeat; MAY NOT BY LAW take a distribution if you are still employed by the sponsoring employer if you are under the age of 59 and a half. Also, Wells Fargo told me that it was because it was the rules set up by the company not the IRS. The hardship withdrawal conditions yes are set by the IRS, but the rest Wells Fargo told me it was because of the way my company set the rules.

No. There is no way to get around the rules.

So that applies just because my former employer is owned by my current employer correct? This doesn’t seem right seeing as though I cannot take a loan out on it now that I don’t work for them anymore, nor can I contribute to it. I cannot roll it over to my current plan either. I’ve been told by Fidelity it’s not possible.

 

[Taxing Matters]

Exactly how it is that your current employer ended up owning the former employer? Did the old employer merge into the new one, such that they are now the same company? Are they both corporations and the new employer owns all the stock of the old employer? Or is it something different? The details matter. Also, how did you end up working for the new employer?

And, by the way, the plans are actually properly called § 401(k) plans because they are plans that meet the requirements of Internal Revenue Code (IRC) section 401(k). So while people often write it as "401K" that is technically not correct.

 

[Scottydogg22]

Exactly how it is that your current employer ended up owning the former employer? Did the old employer merge into the new one, such that they are now the same company? Are they both corporations and the new employer owns all the stock of the old employer? Or is it something different? The details matter. Also, how did you end up working for the new employer?

And, by the way, the plans are actually properly called § 401(k) plans because they are plans that meet the requirements of Internal Revenue Code (IRC) section 401(k). So while people often write it as "401K" that is technically not correct.

My old company was wholly owned and operated by GE at one point then things changed and now we are a “GE Company.” I’m not sure actually what the difference is. Now I work directly for GE. Before, my company was basucally considered a contractor for GE. We were Incorporated which I would assume means we were a separate entity from GE.

 

[Scottydogg22]

Sorry...I meant to say wholly owned and AFFILIATED. Not operated.

 

[Scottydogg22]

Also, I should note that I literally resigned from my old company and hired on with the new. I did not “transfer” to the new company. I had to go through the complete new employee on boarding process.

 

[LdiJ]

Also, I should note that I literally resigned from my old company and hired on with the new. I did not “transfer” to the new company. I had to go through the complete new employee on boarding process.

I can see one small possibility. You could research to see if it is possible for your to roll your old 401k into a IRA since you do not work for the actual company anymore. If so, then once it rolls over into the IRA, you would be able to withdraw some money.

 

[cbg]

Not likely if the 401(k) plans were merged.

 

[Scottydogg22]

Not likely if the 401(k) plans were merged.

They weren’t...I’m under a completely different plan with Fidelity now. That’s the thing...I can understand if I went to GE and theirs was with the same company but they aren’t. How can I legally be bound to a company, Wells Fargo, that I no longer wish to do business with?? I have, or had, plans for that money...debt paid off, other investments, down payment on a house and a new car. It’s MY money!! Lol

 

[Scottydogg22]

I can see one small possibility. You could research to see if it is possible for your to roll your old 401k into a IRA since you do not work for the actual company anymore. If so, then once it rolls over into the IRA, you would be able to withdraw some money.

I’ll have to look into that if need be, but right now doesn’t really fit what I want or planned to do. That’ll be a last resort type thing.

 

[LdiJ]

I’ll have to look into that if need be, but right now doesn’t really fit what I want or planned to do. That’ll be a last resort type thing.

Then you didn't understand what I was talking about.

 

[cbg]

The plan to which you are currently making contributions is immaterial. If your current employer owns the plan from which you want to take the distribution, then you are barred BY LAW from taking a distribution except under the exceptions I already noted. It doesn't matter a damn if you are currently making contributions to it or not.

 

[Scottydogg22]

Then you didn't understand what I was talking about.

No I did and I appreciate the advice. The problem is the “some” part of it. I don’t want to get into the details as to why I need the money, but I need pretty much all of it coming up pretty soon. Like I said, I’ll have to look into it though. Maybe it’ll be my ONLY option.

 

[cbg]

I wouldn't count on it being allowed. While I can't say it's out and out impossible that you could do a transfer to an IRA, it's not very likely that it's allowed by plan rules.

By all means investigate the possibility. But that shouldn't be the only egg you have in your basket, because the odds are very poor that it will come home to roost.