Q&A: Taking money out of 401(k) plans

Q: Two of my employees have asked for in-service distributions from our practice's 401(k) plan. While still employed, is a participant able to receive a distribution?

A: Depending on the terms of the plan, an in-service distribution might be permitted. Employee contributions can be distributed only in the case of a documented hardship, such as the potential loss of a primary residence or uninsured medical expenses. However, profit-sharing monies do not require hardship unless required by the plan. In any case, distributions should be discouraged, since the primary purpose of a retirement plan is to have assets for retirement, not to supplement living expenses during working years.