Involuntary cash-out

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

Related Articles Tutorial or Other Content