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Helpfully expound upon the restrictions for distributions of rollover amounts. Particularly, if rollover amounts remain subject to in-service distribution restrictions. The provenance of the rollover amounts perforce might affect the situation, if the rollovers proceeded from elective deferrals, Roth amounts, after-tax distributions, amongst perhaps further items.

I inquire if hardship distributions may occur from rollover accounts and/or Roth rollover accounts. Also, I inquire if hardship distributions may proceed from discretionary contributions. § 401(k)(14): 26 USC 401: Qualified pension, profit-sharing, and stock bonus plans (house.gov) (14) Special rules relating to hardship withdrawals For purposes of paragraph (2)(B)(i)(IV)- (A) Amounts which may be withdrawn The following amounts may be distributed upon hardship of the employee: (i) Contributions to a profit-sharing or stock bonus plan to which section 402(e)(3) applies. (ii) Qualified nonelective contributions (as defined in subsection (m)(4)(C)). (iii) Qualified matching contributions described in paragraph (3)(D)(ii)(I). (iv) Earnings on any contributions described in clause (i), (ii), or (iii). § 402(e)(3) https://uscode.house.gov/view.xhtml?req=(title:26 section:402 edition:prelim) OR (granuleid:USC-prelim-title26-section402)&f=treesort&edition=prelim&num=0&jumpTo=true#substructure-location_e_3 (3) Cash or deferred arrangements For purposes of this title, contributions made by an employer on behalf of an employee to a trust which is a part of a qualified cash or deferred arrangement (as defined in section 401(k)(2)) or which is part of a salary reduction agreement under section 403(b) shall not be treated as distributed or made available to the employee nor as contributions made to the trust by the employee merely because the arrangement includes provisions under which the employee has an election whether the contribution will be made to the trust or received by the employee in cash.

Plan has the principal residence safe harbor provision. A participant is actively looking to purchase a multiplex building (4 units). He wants to live in 1 unit as his principal residence and lease the other 3 units. He is requesting a hardship distribution to purchase the building. Does this fall under the principal residence safe harbor for hardships? My concern is that the participant is technically purchasing more than his own residence. Any thoughts?

Good morning to all, A participant in one of our plans received a hardship distribution in March of 2019 from her 401(k) account. At that time, she was required to "sit out" from making subsequent deferrals for 6 months. The question is, whose responsibility was it to resume her deferrals? Is the burden on the participant to notify HR that she would like to start back up, or is the burden on the HR department to contact the participant and ask her if she would like to resume deferrals? Or even possibly, was HR supposed to automatically resume her deferrals after 6 months based on prior instructions from the participant given prior to the hardship distribution? In any event, she has not made deferrals since that hardship distribution, a little over 2 years ago, and is now complaining to the new financial director that her deferrals should never have been stopped because "she never signed a waiver asking not to participate". We are trying to help figure out whether any back deferrals, match, and interest are due to her from the date 6 months after the hardship withdrawal was made through today. I have researched this various places and cannot find this particular question addressed. Thank you, ldr

I think this is correct, but as a sanity check since it seems harder than expect to find authority on this - if a 401(k) plan is frozen, it's still permissible for participants to take out new loans and hardship withdrawals, correct?

The Internal Revenue Manual describes a method for a plan’s administrator to decide a claim for a hardship distribution using only the participant’s written statements, including some that “summarize” an expense incurred. Under this method, the administrator need not read, nor even immediately collect, a source document that shows the claimed hardship expense. https://www.irs.gov/irm/part4/irm_04-072-002#idm140377115475856 How many of your clients use this method and do not ask for any source document? How many of your clients require a source document? Do your clients’ methods vary with the plan’s recordkeeper?

Part of the newly issued hardship regulations in determining whether an amount satisfies an immediate and heavy financial need was to replace the facts and circumstances test with the three requirements here: Amount Necessary to Satisfy Need. A distribution will be considered as necessary to satisfy your immediate and heavy financial need only if: (1) You have obtained all distributions, other than hardship distributions, under all plans maintained by the Employer; (2) The distribution is not in excess of the amount of an immediate and heavy financial need (including amounts necessary to pay any federal, state or local income taxes or penalties reasonably anticipated to result from the distribution). (3) You have represented in writing or by electronic medium that you have insufficient cash or other liquid assets to satisfy the financial need. My question is, in regards to (1) above - does this mean theoretically that a participant who is age 59 1/2 or older and thus eligible for an in-service distribution, must take the in-service distribution and get hit with a 20% withholding prior to taking a hardship distribution?

Treasury Official Gives Favorable Interpretation of 401(k) Hardship Amendment Deadlines for Volume Submitter and Prototype Plans And suggests there may be more to come At the ASPPA Annual Conference on Tuesday, October 22, 2019, Carol Weiser, Benefits Tax Counsel at the Treasury, discussed recent concerns about the deadline for preapproved plans to amend to conform to the recently published final hardship regulations. In effect, she said that the deadline is the due date of the employer’s income tax return (e.g., Form 1120), plus extensions, if any, for the tax year which includes January 1, 2020. This is true even if the amendment was put into effect in 2019. This gives us more time than many of us had feared, based on a conservative reading of the final regulation. She gave three examples to illustrate Treasury’s view. In each case, assume the employer is a C corporation and the corporation does not extend the return. Assume a plan sponsor with a calendar year fiscal year implemented the mandatory changes of the regulations in 2019. The deadline is the due date of the 2020 return (April 15, 2021). Assume a plan sponsor implemented all of the changes on June 1, 2019 and has a fiscal year and plan year that ends June 30. The deadline is the due date of the employer’s return for the tax year ending June 30, 2020 (October 15, 2020). Assume a plan sponsor delays implementation of the mandatory changes of the regulations to the latest possible date, which is distributions made on or after January 1, 2020. If the plan sponsor has a tax year that begins on February 1, then the change to the plan would be effective for the fiscal year beginning February 1, 2019 and ending January 31, 2020. (May 15, 2020). She added “We are still looking at whether there is anything else we should be doing to consider whether [the third situation] is perhaps too short a time frame given when we were able to issue the final regulations – so something that we are still looking at, so stay tuned for that.” This offers the prospect of a later announcement of a later, or perhaps fixed deadline, unrelated to tax return due dates. While Ms Weiser prefaced her comments that this was not an “official” pronouncement of the Treasury, the context of the statements put to rest the concerns of those in attendance that the deadlines for calendar year taxpayers might be in early 2020. https://www.erisapedia.com/static/HardshipAmendmentDeadline.pdf

Has anyone seen or does anyone have insight into why we haven't received an update from the IRS on hardship and loan relief to victims of Hurricane Florence, similar to other hurricanes such as Harvey and Matthew? From a quick google search, it appears that the announcement was provided within a few days of the disaster in the past. The only update I can find is with respect to tax relief, but not hardships and loans. https://www.irs.gov/newsroom/help-for-victims-of-hurricane-florence

One my plans is under CPA Audit and the auditor doesn't like that they don't automatically re-start 401k after 6 months after a hardship distribution. Is an employer required to automatically re-start 401k for a participant after 6 months? Can they require that the participant fill out new election paperwork?

A participant takes a hardship distribution on 1/3/2018. Suspension period goes through 7/3/2018. If participant then takes another hardship 5/3/2018, does the suspension period go through 11/3/2018? The plan has a match provision. Does a new hardship distribution require a new 6 month suspension?

An employee is stating the recent legislation (Bipartison Budget Act of 2018) allows the participant to request a hardship for elementary and high school education expenses. Am I correct that we are still waiting for IRS guidance on the Bipartison Budget Act of 2018, it's not effective until 2019, and plan amendments would need to be put in place to make the applicable changes?

Small (less than 100) 401(k) plan does not presently allow for loans - but would like to add them, subject to the hardship rules. they would like to restrict salary deferrals while a loan is being repaid. Meaning the participant cannot make deferrals until the loan is repaid in full. The thinking is that if the participant has extra cash available to make deferrals, then they should be using that extra cash towards the loan. i don't see anything on the face that would make this provision a problem - except a possible BRF issue. If loans are available only for hardship purposes, probably NHCE will be the primary users. If so, then the deferral restriction will primarily affect NHCE. HCE that do take a loan would likely have more means to repay it quicker. Am I over thinking this? Thoughts? Should this provision be allowed?

We have a participant in one of our 401K plans that is requesting a hardship withdrawal that does meet the safe harbor criteria, but he has an outstanding loan. Does this preclude him from a hardship distribution, since the current loan has not been repaid?

Quick question on hardships for medical expenses. Would a participant be able to claim a hardship to pay for medical insurance? My first though is/was no, but as I look at the text I am unsure as the IRC seems to suggest that they can. The SPD says: The Plan does allow for hardship distributions for the following qualifying expenses:  Expenses for medical care (described in Section 213(d) of the Internal Revenue Code) for you, your spouse or your dependents.... When I look at IRC §213(d), 213(d)(1)(D) says for insurance covering medical care referred to in subparagraphs (A) and (B) or for any qualified long-term care insurance contract. exact copy and paste of §213(d)(1)(D) from Cornell Law below: (D) for insurance (including amounts paid as premiums under part B of title XVIII of the Social Security Act, relating to supplementary medical insurance for the aged) covering medical care referred to in subparagraphs (A) and (B) or for any qualified long-term care insurance contract (as defined in section 7702B(b)). In the case of a qualified long-term care insurance contract (as defined in section 7702B(b)), only eligible long-term care premiums (as defined in paragraph (10)) shall be taken into account under subparagraph (D). So, this seems to suggest that a participant can request a hardship for insurance premiums. Is there anything that I am missing that would prohibit this type of expense from being a qualified hardship? Thanks in advance!

I am a TPA that received a request from a Financial Advisor asking if participant could get a 30 year principal residence loan (allowed in plan) under the following circumstances: Divorce situation - spouse doesn't want a QDRO, but he needs the money to pay his (ex?)spouse. Can't afford to keep his home unless he receives a loan or hardship distribution Hardships use the Safe Harbor criteria so states 'Costs directly related to the purchase of a principal residence for the Employee (excluding mortgage payments)'. The loan policy states that the loan can be for 30 years if proceeds are used to acquire a dwelling unit which within a reasonable time will be used as your principal residence. He already lives in the house, so I don't think he can do the 30 year loan as he is not acquiring the residence. So it appears that the maximum loan could be only 5 years. I don't see a way for him to do either a 30 year loan or a hardship distribution. Is that an accurate interpretation based upon this information? Looks like the spouse's lawyer is smarter is getting her the money without a QDRO so she doesn't have to pay taxes on it, but that's outside of my hands. I've asked for more information to see if there are any other options, such as distribution from Rollover source and/or in-service at age 59.5. But the Financial Advisor may have already looked into these options. Thank you in advance for any thoughts/options.

TPA and client agree that withdrawals for tuition under hardship provisions must be for upcoming, unpaid tuition. Client is worried that if a student begins a semester, let's say, September 1 and starts attending classes, but the tuition bill isn't issued, mailed and due until, say, October 1, then the tuition is "old" business and may not qualify, or at least might need to be somehow pro-rated such that the September expenses are not included. TPA takes the position that the timing of the billing does not matter; the bill is for the whole semester and the fact that it didn't have to be paid to the penny up front is immaterial. We can't find a chapter and verse anywhere that addresses the exact timing of the bill. What say all of you? Thank you.

A participant is requesting a hardship distribution for funeral costs for a sister. The sister did not live with the participant and was not claimed as a dependent on the participant's tax return. What does the plan sponsor have to do to verify if the participant's sister is a dependent? Thanks!

Can an alternate payee (ex-spouse) request a hardship from the Plan? I have an alternate payee that wants to do this. The plan document is silent on it. They first wanted a loan, which obviously they cannot have because payments cannot be made via payroll. Not sure about hardships though. Thanks in advance!

Simple example: Plan allows loans and hardship only from employee deferrals (no gains). EE contributes 10,000, balance is 12,000. Received a loan for 50% VB, or $6,000 total. EE qualifies for a $10,000 hardship (for example). I compute that the EE can receive $6,000 in hardship. Agreed?

Hello all! I have a participant, who also happens to be the president of the company, (we are the trustee) who is considering a hardship. He is past due on his mortgage and has the past due notice for proof. It is not in a foreclosure status yet. But he knows it will get to that point and he is being proactive. He is requesting a hardship amount that equals about 6 months of mortgage payments to prevent any foreclosure to happen. He is putting the house on the market and hoping it sells before then. I read somewhere that the hardship event doesn't have to be unforeseeable and he is deeming this as necessary to not lose his home. In someone's expert opinion - Would the 6 months worth of mortgage payments be allowed? OR - his other option is to request a hardship every month when he is past due? With that second option he will be prolonging his ability to contribute to the plan for a long time. Thank you in advance!

Health insurance premiums for a partner in a partnership are paid by the partner and deducted on his personal return. Does the fact that this expense is classified as deductible by IRC Section 213(d) make it hardship withdrawal-eligible? Assuming that all the other requirements are met. And if not eligible, what specifically excludes it? Thanks! Dog

Hello All, Quick question on a scenario: We have a participant who is taking a hardship from the plan. For argument sake, say the plan allows only hardship withdrawals from Employee money. She has 10,000 in employee money available for hardship (after all necessary calculations), and 10,000 in employer match money NOT available for hardship. If she elects to take out 9,000 (backup permitting) AND gross up 20% for taxes, are we able to take out 11,250 so she nets out to 9,000 or are we limited to 10,000 - leaving her with a net check of $8,000? I believe we are able to take fee's past the limit (for example a $10,000 withdrawal and then a $100 fee from the Employer Money) but this seems like a different scenario My feelings and around the office is that you are limited to $10,000, with a net check of $8,000. The logic being that if there is not that limit then you could have scenarios where someone elects 10,000 withdrawn and then another 10,000 "withheld for taxes" to skirt around the Employer money limitation. Could not find much on this in research. Thank you in advance for the help!

Participant requested a hardship earlier this month. Today he contacted out distribution administrator to tell her that the sale might not go through as the current owner found out the property had a lien on it (from a prior owner I guess) and current owner doesn't want to pay/might not show up to the closing today. Do, if participant doesn't close on this house, what should he do with his h/s distribution? Taxes have been paid on the disbursement and MassMutual sent the money to his bank account. If the closing doesn't go through today, the participant will continue to look to purchase another primary residence. Thoughts?

I have a client that allows loans for harships only. One of their employees (an NHCE) is in some financial trouble, but not for any of the hardship reasons (primary residence, medical, funeral etc.) The client would like to help out this employee but does not want to open the floodgates to the other employees, so I have a few questions: 1. What kind of evidence for the hardship is required by IRS/DOL (not by the plan)? Can we take the employee on their word only? 2. Can we amend the plan to allow for loans specifically naming this employee? 3. Can we amend the plan to allow for non-hardship loans for a specific period, say 5/1-5/31? 4. The loan is for a car - can we amend the plan to only allow loans for harship and transportation to and from work? The bottom line is the client wants to help put their employee, but not does want all the other employees to start taking loans for "non-hardship" reasons. Let me know what you think. Thanks