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  2. Practical tips to help clients with unintended early withdrawals from 401(k) plans {PFP Section}

Practical tips to help clients with unintended early withdrawals from 401(k) plans {PFP Section}

Sep 13, 2024

In this podcast, Kelley Long, a CPA financial planner, discusses two overlooked 401(k) scenarios that can lead to unexpected taxes or penalties: 

  • when someone leaves their job with an outstanding 401(k) loan, and
  • when an employee's contributions are refunded due to plan testing failure.

Kelley explains how to avoid penalties by making loan payments into a rollover IRA before the tax return deadline and highlights the importance of identifying whether a 401(k) plan is safe harbor to prevent contribution limits for highly compensated employees.

Questions answered:

  1. What happens if I leave my job with a 401(k) loan?
  2. How can I avoid early distribution penalties after leaving my job?
  3. What is a "return of contributions" in a 401(k) plan?
  4. How does being a highly compensated employee affect 401(k) contributions?
  5. What is a safe harbor 401(k) plan, and why is it important?

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This episode is brought to you by the AICPA’s Personal Financial Planning Section, the premier provider of information, tools, advocacy, and guidance for professionals who specialize in providing tax, estate, retirement, risk management and investment planning advice. Also, by the CPA/PFS credential program, which allows CPAs to demonstrate competence and confidence in providing these services to their clients. Visit us online to join our community, gain access to valuable member-only benefits or learn about our PFP certificate program.

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