What limitation applies to elective contributions in CODA plans?

Elective contributions in cash or deferred arrangement (CODA) plans, which include 401(k) plans, are indeed subject to certain withdrawal limitations. Unlike regular savings accounts where funds can be accessed at any time, the Internal Revenue Code imposes restrictions on when and how participants can withdraw their contributions from these plans.

Typically, participants can only access their funds under specific circumstances, such as reaching retirement age, experiencing a financial hardship, or upon termination of employment. These rules are in place to encourage long-term saving for retirement and to ensure that the contributions are used as intended.

In contrast, other choices present scenarios that do not accurately reflect the regulations around these plans. For instance, the idea that contributions can be withdrawn at any time contradicts the very purpose of these retirement savings vehicles. While loans may be allowed in some plans, they are not a standard feature of all CODA plans and are subject to different rules. Lastly, stating that there are no limitations fails to recognize the regulatory framework designed to safeguard retirement savings. Thus, the correct understanding is that there are indeed specific limitations on how and when funds can be withdrawn from CODA plans, which supports the assertion that they are subject to withdrawal limitations.