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My employer stopped taking my my 401k contributions after 12 years of my participation. They said since I am a union member I was never really eligible. However they won't release my funds so that I can start my own IRA.It seems to me if I can't contribute to the 401 my participation has been terminated and they should have to make the appropriate distributions. I appreciate any information anyone has on this subject.

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There is no federal rule barring union members from participating in employer-sponsored 401K plans. And as described at this site 401K plans are often offered by a union directly to its members. However, it is possible that your employer's plan is not (or is no longer) open to union members. You could ask for a copy of the written rules under which they say you are not eligible to make further contributions.

If you cease to be an employee, the plan must allow you to withdraw your account. It must also allow withdrawals once you reach age 59 1/2. It is usual for a 401K to allow you to withdraw at any time, withholding the proper IRS penalty, or accepting a statement that you will roll the money over to a qualified IRA account within 30 days. Many plans allow direct rollovers, in which the plan sends the account balance (or part of it) directly to such a qualified account. This is often the best method, because it avoids any error that might trigger a 10% penalty. You might want to ask if direct rollovers are supported by your plan. Get the answer in writing, especially if it is "no".

However, a plan is not required to support direct rollovers. In fact I cannot find any rule that requires a plan to permit withdrawals for current employees prior to age 59 1/2, although I have never encountered a plan that forbids all such withdrawals. You could ask for a copy of the plan's written rules on withdrawals.

Once you have a copy of the rules, you can consult a lawyer with knowledge of 401K law as to whether the plan can deny your request, and what steps you might be able to take.

See also the article Challenges of Retirement Plans for Union Members: The collective bargaining agreement rules from Plansponsor for some relevant information.

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