How Do Small-Balance Cash-Outs Work Across Multiple Plans?

Q: We have a 401(a) plan and a 403(b) plan, both of which automatically cash out small balances less than $7,000. Is the $7,000 threshold per plan, or must both of our plans be aggregated for this purpose?

Kimberly Boberg, Kelly Geloneck, Emily Gerard and David Levine, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:

A: The $7,000 small balance threshold, which was increased from $5,000 beginning this year under a provision of the SECURE 2.0 Act of 2022, is indeed a per-plan limit.

Thus, if a participant terminated employment with a $5,000 balance in your 401(a) plan and $5,000 in your 403(b) plan, both balances would be cashed out, even though the participant’s total account balance would be $10,000.

The new SECURE 2.0 provision did not change the fact that the $7,000 threshold is a per-plan limit.

NOTE: This feature is to provide general information only, does not constitute legal advice and cannot be used or substituted for legal or tax advice.

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