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Plan Qualification

A 401(k) plan must meet all of the normal tax qualifications rules, nondiscrimination rules and in addition, all of the following requirements:

Amounts must not be distributed except by reason of:
1. Retirement, death, disability, or other separation from service
2. Hardship
3. Attaining the age of 59-1/2 for profit-sharing or stock bonus plans
4. In a lump sum upon termination of the plan, or
5. In a lump sum upon the employer’s disposition of (i) substantially all of its trade or business assets, or (ii) subsidiary.
Employee’s elected contributions must be nonforfeitable.
Employee must be able to elect the employer’s contribution be paid (a) in cash, or (b) as plan contribution.
Elective deferral cannot exceed the inflation-adjusted annual limit (see chart above).
Meet certain special nondiscrimination rules for actual deferral percentage tests, so highly compensated employees can’t elect a disproportionately higher amount of their salary.