ESOP dividends and SEPPs in 401K

L1: ESOP dividends and SEPPs in 401KFound out Friday that my 401k plan will allow partial rollovers in 2005. Therefore I may decide to keep aremaining sum in the 401K plan to start a SEPP and roll the rest.
The 401K plan allows for ESOP company stock dividend payments to be disbursed without incurring the 10% penalty,which is my current election.If I start a SEPP, will the dividend disbursement be considered a bust, although on it’s own it was considered as outside the early distribution penalty?
Also, is there any advantage/disadvantage of a SEPP within 401K versus IRA.? I like the 401K due to the good/steady returnof Stable Funds, when not in higher risk investments. I plan to use the IRA for higher education, which I understand would be a valid early withdrawl exception only from an IRA.
Thanks,
Bob2004-12-05 02:08, By: cartows, IP: [141.152.222.198]

L2: ESOP dividends and SEPPs in 401KHello Bob:
SEPP plans have long been thought to be valid as long as the only cash disbursement to the taxpayer was the SEPP distribution. Multiple times, taxpayers have asked here if they could start a SEPP plan on an account and them also take another distribution for another qualifying reason; e.g. medical expenses; 1st home purchase, education, etc.
Unfortunately, we are in “no man’s land”. There is no law and there are no rulings on this combination issue. As a result, I would suggest you either: (a) stop the disbusement of dividends and instead allow them to be paid back into the account, or (b) seek a private letter ruling on the subject.
I can see valid arguments in both directions; I just don’t definitively know the answer & would consider it too dangerous to proceed while not knowing.
TheBadger
wjstecker@wispertel.net
2004-12-05 08:39, By: TheBadger, IP: [66.250.23.22]