My company changed names and merged with new partners. They provided employees with new handbooks with the new company name. The administrator of my 401k plan terminated my employment with the old company. I was still employed but under new company. I rolled-over my 401k plan to a bank ira account. Now 4 years later company wants money back since my employment status is still considered with old company. It appears that new company and old company share the same tax id number. Money has been exhausted and IRA withdrawals have been included in my IRS tax returns. Do I have to return money to company? All monies placed in 401K plan was deducted from my bi-weekly paycheck. Company did not contribute any funds. Thank you for your help.

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Originally Posted by laadonna

... The administrator of my 401k plan terminated my employment with the old company. I was still employed but under new company. I rolled-over my 401k plan to a bank ira account. Now 4 years later company wants money back since my employment status is still considered with old company.

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I sympathize with your problem here - you've paid taxes (including early withdrawal penalties) on the withdrawals from your IRA, and there's no money to return to the 401(k). Seems when the plan administrator "terminated your employment with the old company" that was a big mistake ontheir part, correct? I assume your company's rules do not allow withdrawals by active employees, except under the "hardship" coinditions as specified by the IRS. They probably had an audit recently and your case popped out as having been incorrectly administered.

One thing to consider is whether the money was used for one of these hardship uses:

1. Expenses for medical care previously incurred by the employee, the employee’s spouse, or any dependents of the employee or necessary for these persons to obtain medical care;
2. Costs directly related to the purchase of a principal residence for the employee (excluding mortgage payments);
3. Payment of tuition, related educational fees, and room and board expenses, for the next 12 months of postsecondary education for the employee, or the employee’s spouse, children, or dependents;
4. Payments necessary to prevent the eviction of the employee from the employee’s principal residence or foreclosure on the mortgage on that residence;
5. Funeral expenses; or
6. Certain expenses relating to the repair of damage to the employee’s principal residence.

If you can show that you used the money for one or more of these purposes, you can argue that the 401(k) plan would have been required to let you make the withdrawal. It has to be one of these specific purposes; unfortunately, simply using the money to pay bills - even to forestall bankruptcy - is not considered a valid "hardship" by the IRS for the purpoises of a 401(k) withdrawal.

Other than that, I don't have any terribly great advice, except to write a letter in response pointing out that this was their mistake, that it's impossible for you to transfer the money back, and they should simply count it as a valid rollover to an IRA.

I'm curious to see how this turns out for you. Please be sure to keep us posted.