unforeseeable emergency

[Guest Benefitsrock]

I have an unforeseeable emergency that is due to my dad's medical expenses. He had to have open heart surgery last week. In order to get a distribution from my 457 plan, do the medical expenses have to be for me, my wife, or my child (a dependent)? The plan refers me to the 457 definition of an unforeseeable emergency.

[QDROphile]

1. Ask and see if you get rejected.

2. Check the IRS website. The IRS issued guidance recently about what is acceptable.

3. It would help a lot if the expenses were for a tax dependent.

[Guest Benefitsrock]

1. Ask and see if you get rejected.

2. Check the IRS website. The IRS issued guidance recently about what is acceptable.

3. It would help a lot if the expenses were for a tax dependent.

Thanks. I asked and was turned down.

[Peanut Butter Man]

I have an unforeseeable emergency that is due to my dad's medical expenses. He had to have open heart surgery last week. In order to get a distribution from my 457 plan, do the medical expenses have to be for me, my wife, or my child (a dependent)? The plan refers me to the 457 definition of an unforeseeable emergency.

The IRS has a FAQ on unforeseeable distributions from 457(b) plans. It states:

"6. What is a distribution on account of an unforeseeable emergency under a 457(b) plan?

Under a 457(b) plan, a hardship distribution can only occur when the participant is faced with an unforeseeable emergency. (Code § 457(d)(1)(iii))

An unforeseeable emergency is a severe financial hardship resulting from an illness or accident, loss of property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the participant or beneficiary. Examples of events that may be considered unforeseeable emergencies include imminent foreclosure on, or eviction from, the employee's home, medical expenses, and funeral expenses. Generally, the purchase of a home and the payment of college tuition are not unforeseeable emergencies.

(Reg. § 1.457-6©(2)(i))

Whether a participant or beneficiary is faced with an unforeseeable emergency depends on the facts and circumstances. However, a distribution is not on account of an unforeseeable emergency to the extent that the emergency can be relieved through reimbursement or compensation from insurance, liquidation of the participant's assets, or cessation of deferrals under the plan. (Reg. § 1.457-6©(2)(ii))

A distribution on account of an unforeseeable emergency must not exceed the amount reasonably necessary to satisfy the emergency need. (Reg. § 1.457-6©(2)(iii))"

Treas. Reg. 1.457-6©(2) defines unforeseeable emergency for 457 plans. Your plan probably contains a version of this definition. It states:

"(2) Requirements—(i) Unforeseeable emergency defined. An unforeseeable emergency must be defined in the plan as a severe financial hardship of the participant or beneficiary resulting from an illness or accident of the participant or beneficiary, the participant’s or beneficiary’s spouse, or the participant’s or beneficiary’s dependent (as defined in section 152(a)); loss of the participant’s or beneficiary’s property due to casualty (including the need to rebuild a home following damage to a home not otherwise covered by homeowner’s insurance, e.g., as a result of a natural disaster); or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the participant or the beneficiary. For example, the imminent foreclosure of or eviction from the participant’s or beneficiary’s primary residence may constitute an unforeseeable emergency. In addition, the need to pay for medical expenses, including non-refundable deductibles, as well as for the cost of prescription drug medication, may constitute an unforeseeable emergency. Finally, the need to pay for the funeral expenses of a spouse or a dependent (as defined in section 152(a)) may also constitute an unforeseeable emergency. Except as otherwise specifically provided in this paragraph ©(2)(i), the purchase of a home and the payment of college tuition are not unforeseeable emergencies under this paragraph ©(2)(i)."

Because your dad is not your spouse or dependent, the Treasury Regulations do not permit a distribution for an unforeseeable emergency from your 457 plan. On November 8, 2010, the IRS issued Revenue Ruling 2010-27. It contains three examples of distributions from 457 plans for unforeseeable emergencies. In one of the examples, the unforeseeable emergency is to pay for the funeral of an adult child. In Rev. Rul. 2010-27, the IRS states that this is not a permissible distribution from a 457 plan for an unforeseeable emergency because an adult son is not a dependent or spouse.

[Rafael]

Quote

Because your dad is not your spouse or dependent, the Treasury Regulations do not permit a distribution for an unforeseeable emergency from your 457 plan. On November 8, 2010, the IRS issued Revenue Ruling 2010-27. It contains three examples of distributions from 457 plans for unforeseeable emergencies. In one of the examples, the unforeseeable emergency is to pay for the funeral of an adult child. In Rev. Rul. 2010-27, the IRS states that this is not a permissible distribution from a 457 plan for an unforeseeable emergency because an adult son is not a dependent or spouse.

Rev. Rul. 2010-27 does allow the distribution in the scenario described provided the Plan has the "extraordinary and unforeseeable circumstance" language.

"The facts in Situation 2 also do not fit within any of the specific examples that are listed in § 1.457-6(c)(2)(i) or Plan Y as constituting an unforeseeable emergency. The need to pay for funeral expenses of a spouse or dependent is one of the examples that is listed in the regulation and the plan document as constituting an unforeseeable emergency, but the facts in Situation 2 involve the death of an adult son who is not a dependent (as defined in § 152(a)) of the participant. Nevertheless, § 1.457-6(c)(2)(i) and Plan Y also authorize payment in other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the participant. The need to pay for the funeral expenses of a non-dependent adult son is an extraordinary and unforeseeable circumstance that arises as a result of events beyond the control of the participant and that is substantially similar to the need to pay for the funeral expenses of a dependent."

On a different note has anyone looked closer at the unforeseeable emergency dealing with prescription drugs? More specifically what if the prescription drugs are a monthly prescription? I haven't found much and am leaning on requiring a monthly request given that on any given month the future drugs' cost is not an emergency. 

[Rafael]

Nevermind on my above question. Just saw this discussion: