Reference no: EM132463882

Ward Schmentz, who is a long-time employee of ABC Company, has decided to change jobs. Ward is 53 years old. His vested account balance in ABC's 401(k) plan consists of $300,000, $200,000 of which is attributable to his contributions and $100,000 is attributable to employer matching contributions. Ward has asked for a check in the amount of $300,000. He is pretty sure he will roll the $300,000 into an IRA even though his new employer also has a 401(k) plan.

Question 1. How much cash will Ward receive?

Question 2. How much does he have to roll into an IRA to avoid tax on his distribution?

Question 3. What are the tax consequences to Ward if he rolls over $200,000 within 30 days of the date he gets a check from the plan and doesn't roll over any additional amounts before the end of the 60 day rollover period?

Question 4. What advice would you give Ward to improve his economic and tax position?

Good News! Cindy talked Ward into staying with ABC Company before he received any distributions. Ward, though, says he has an unforeseen need for $60,000. Cindy tells Ward that the 401(k) plan provides for "hardship distributions," so Ward requests and receives a $60,000 hardship distribution.

Question 1. What are the tax consequences to Ward?

Question 2. If the plan also provides for loans, what advice would you give Ward?