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Subject:  Re: Voluntary Separation and 401K? Date:  1/6/2008  9:51 AM
Author:  TMFPMarti Number:  97653 of 127747

My husband accepted a voluntary separation arrangement (an "early-out") with his employer last January. Under the terms of the agreement he was to cease active employment but would be considered an "employee-consultant" for the next two years. As an "employee-consultant" he would be eligible to continue participating in the employer's 401K plan, "to the extent permitted by applicable law and regulation." The other day we were notified that his 2008 contributions to the plan, both regular and catch-up, had been zeroed out. When he called HR to ask why, he was told that "the IRS had changed the rules."

Does anyone know of a recent IRS ruling that might be applicable to the situation I have described?

No. There's an important piece of the puzzle missing. How much was he to be paid as an "employee-consultant"? The maximum 401(k) contribution is 100% of compensation, and 100% of zero is still zero.

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