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Distribution Restrictions  

Distributions are governed by specific rules outlined in the plan document, and generally fall into various categories. Each plan sponsor must determine the type of distributions allowed and stipulate those as specific provisions in the plan document.

Below is a description of the more common types of distributions available.

Cash out

Allows employers to close accounts and distribute small balances to employees who have separated from service, without first obtaining the participant’s consent.


Generally, payments allowed when an employee becomes unable to engage in substantial gainful activity due to a medically determinable permanent physical or mental impairment.


In-service distribution allowed in some plans that is necessary to satisfy an employee’s immediate or heavy financial need that cannot be relieved by other resources reasonably available to the employee. Costs related to the following are generally recognized by the IRS as valid reasons for hardship distributions.

  • Unreimbursed medical expenses
  • Funeral expenses
  • Purchase of a principal residence (excluding mortgage payments)
  • To prevent foreclosure on or eviction from a principal residence
  • Post–secondary education tuition and certain related expenses
  • Certain repairs for damage to principal residence

Generally, an employee will be prohibited from making elective deferrals to the plan for at least six months after receipt of a hardship distribution.

In service

Withdrawals taken while actively employed. These come in a variety of forms. Some of the more common types include:

  • Qualified active reservist distributions
  • Attainment of age 59 ½

Qualified Domestic Relations Order (QDRO)

The assignment of a portion of a plan benefit to an alternate payee in accordance with a court order approved by the plan administrator.

Required Minimum Distributions (RMDs)

Mandatory distributions to the participant and/or beneficiary which cannot extend beyond the life expectancy of the participant and/or the designated beneficiary(ies).  Life expectancy tables are located in the Treasury Regulations.

Separation from service

Withdrawals made after the employee no longer works for the employer. Some common distributions in this category are:

  • Normal retirement
  • Early retirement
  • Termination of employment
  • Disability