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Hardship - Allowable?


bzorc
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I have a participant in a plan that, as a result of her employer moving her from one location to another (and then having to also move her parents, as she is their caretaker), is requesting a hardship withdrawal to "lease" (i.e, rent) a house in her new location. She has no other source of funds and the employer would like to grant this request.

As the lease is for, technically, her principal residence, would you be inclined to grant the withdrawal?

Thanks for any replies.

 

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29 minutes ago, bzorc said:

I have a participant in a plan that, as a result of her employer moving her from one location to another (and then having to also move her parents, as she is their caretaker), is requesting a hardship withdrawal to "lease" (i.e, rent) a house in her new location. She has no other source of funds and the employer would like to grant this request.

As the lease is for, technically, her principal residence, would you be inclined to grant the withdrawal?

Thanks for any replies.

 

I would say not, but we make the plan administrator/trustee make that decision.  We advise that they should gather proof, but it's up to them to allow or not. And it depends on what type of hardships the document allows; fact and circumstances, safe harbor rules. 

4 out of 3 people struggle with math

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Based on the letter of the law, assuming the plan uses the safe harbor rules, I'd say no.  She is not purchasing a principal residence.  Nor are moving expenses listed.

Does the employer not provide moving expenses?

 

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QKA, QPA, CPC, ERPA

Two wrongs don't make a right, but three rights make a left.

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No moving expenses covered. Plan only covers the IRS Safe Harbor reasons for hardships. I am telling the sponsor that this is not an allowable hardship withdrawal application. Thanks for your replies.

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14 hours ago, Bill Presson said:

Employer should find a way to help this employee outside the plan.

Hmmm. Good luck with that! Employers do the least they can for employees nowadays. Not like back in the 70s/80s! 

4 out of 3 people struggle with math

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If the worker can find or borrow enough money to pay the initial payment the landlord calls for, might she fail to pay rent until the landlord delivers an or-else eviction notice?  Would that set up a recognized need for “[p]ayments necessary to prevent the eviction of the employee from the employee’s principal residence”?

I do not recommend this.  Rather, it illustrates one of the many absurdities in this bit of tax law.

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Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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3 hours ago, Peter Gulia said:

“[p]ayments necessary to prevent the eviction of the employee from the employee’s principal residence”?

Hardships are for immediate and heavy financial need.  The former does not apply.

QKA, QPA, CPC, ERPA

Two wrongs don't make a right, but three rights make a left.

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