Part 6 · Chapter 1
In-Service Distributions, Hardships, and Participant Loans
Scope and status
This chapter covers when a participant may take money out of a plan while still employed: in-service distributions, hardship distributions, and participant loans. SECURE 2.0 added a menu of new penalty-free distributions and a hardship self-certification rule, so the current amounts, effective dates, and the plan's adoption of each feature should be confirmed before relying on them.
Citations are to primary authority (Code §§401(k)(2)(B), 403(b)(7)/(11), 457(d), 72(p), 72(t), 401(a)(13), 4975(d)(1); the hardship regulation at Treas. Reg. §1.401(k)-1(d) (T.D. 9875); the loan regulation at Treas. Reg. §1.72(p)-1 (T.D. 8894, as amended by T.D. 9021); and the SECURE 2.0 provisions). The tax, rollover, and withholding rules, including the §72(t) 10% additional tax, are in chapter 2 of this Part, and the required minimum distribution rules are in chapter 3. Correction of loan and distribution failures is covered in Part 21 (Plan Corrections: EPCRS, VFCP, and DFVCP) (Form 14568, Schedule 5, for §72(p) loan failures).
Sections
Part A — The Distributable-Event Gate
A1.A 401(k) plan may distribute only on a permitted event — by source
Part 6, ch. 1, § A1
Elective deferrals (and QNECs, QMACs, and safe-harbor contributions) may be distributed only on a statutory distributable event: severance from employment, age 59½, death, disability, plan termination (without a successor plan), hardship, a qualified reservist distribution, and the events added by statute for specific SECURE 2.0 distributions (§401(k)(2)(B)(i)(VI)–(VII)) (Part C). Not every penalty-free distribution is a distributable event: for example, a terminal-illness distribution is exempt from the §72(t) tax but is not itself a distributable event for elective deferrals (Notice 2024-2, Q&A F-12). Statute: Code §401(k)(2)(B); Final reg: Treas. Reg. §1.401(k)-1(d); IRS Notice: Notice 2024-2. 403(b) elective deferrals and custodial accounts have parallel restrictions (§403(b)(7)/(11)); governmental 457(b) plans key off severance, age 59½, and unforeseeable emergency (§457(d)).
A2.In-service distributions from non-401(k) (profit-sharing/match) sources
Part 6, ch. 1, § A2
A profit-sharing or stock-bonus plan may allow in-service distribution of employer (non-elective/match) money that has satisfied a plan-specified maturity condition: amounts held a fixed number of years (the "2-year rule" — funds accumulated at least 2 years), participation for at least 60 months, or attainment of a stated age or other stated event (and on disability). Final reg: Treas. Reg. §1.401-1(b)(1)(ii); Rev. Rul. 71-295, 68-24. A pension plan (DB or money-purchase) may make in-service distributions only at age 59½ or normal retirement age (Code §401(a)(36)).
A3.Age-59½ in-service and the §401(a)(36) rule
Part 6, ch. 1, § A3
A 401(k) or other DC plan may permit in-service distribution at age 59½ of any vested source (including elective deferrals); a pension plan may make in-service distributions beginning at age 59½. Statute: Code §401(k)(2)(B)(i)(III), §401(a)(36).
Part B — Hardship Distributions
- B1Immediate and heavy financial need (the safe-harbor events)Subscribers
- B2Amount necessary, and the post-2019 liberalizationSubscribers
- B3Self-certification and documentationSubscribers
Part C — SECURE 2.0 Penalty-Free and Special Distributions
- C1The new distribution menu (confirm amount, effective date, and plan adoption — most are optional)Subscribers
- C2Qualified reservist distributions; the §72(t) overlaySubscribers
Part D — Participant Loans
- D1The dual framework — §72(p) (tax) and §4975(d)(1) (prohibited-transaction)Subscribers
- D2Amount, term, and amortizationSubscribers
- D3Default, cure period, deemed distribution, and loan offsetSubscribers
- D4Leave of absence, spousal consent, and correctionSubscribers