Check a small retirement-plan account against the involuntary cash-out rules
Key facts
- Human involvement
- YellowClose supervision
- How AI is used
- From the distribution papers, record whether the participant has separated from employment, the account balance the plan used, whether rollover money is included in that balance, whether the participant or beneficiary elected to take the money or to roll it over, and whether the plan document states an involuntary cash-out limit. Do not decide that a payment without consent is permitted, and do not prepare the notice.
- What the lawyer must review
- The lawyer decides whether this account may be distributed or rolled without an election. The IRS rollover page says that if the participant is no longer employed and the account is between $1,000 and $5,000, the administrator may deposit the money into an IRA in the participant's name if the participant does not elect to receive it or roll it over. If the account is $1,000 or less, the administrator may pay it to the participant, in most cases less 20 percent income tax withholding, without consent, and a rollover within 60 days remains available. The IRS 401(k) distribution guide says consent is generally required if the balance exceeds $5,000, that the plan may leave rollovers from other plans out of that $5,000 test, and that the plan may also require a spouse's consent. If a distribution in excess of $1,000 is made and the participant or designated beneficiary does not elect to receive it or to roll it over, that guide says the administrator must transfer it to an individual retirement plan of a designated trustee or issuer and give written notice that it may be transferred to another individual retirement plan. Notice 2026-34 says section 304 of the SECURE 2.0 Act permits a plan to increase its involuntary cash-out limit from $5,000 to $7,000. It does not say that every plan has done so. The two participant pages still state $5,000. The lawyer uses the limit in this plan, and does not treat an Australian inactive-account transfer to the revenue authority as this rule.
- Written for / version
- United States versionUS
Who does what
| Role | What they do |
|---|---|
| Assistance | Do not begin AI assistance until the responsible lawyer has defined and confirmed its permitted scope. |
| Lawyer | Set the scope, supervise the work closely, verify every part relied on, resolve omissions and exceptions, and approve the exact output. |
Checklist
- Open each relied-on authority independently. Confirm its existence, current status, proposition and any quotation or pinpoint reference.
- Confirm the output against the client’s instructions and the complete relevant source material, including omissions or contradictions.
- Resolve exceptions and record the responsible lawyer’s approval of the exact output and intended use.