What do you do if a person does not have enough money in his/her accou

[Guest UKH]

Mr X took a hardship distribution of $50,000 from his account. Now his account balance is only $2,000. $6,000 needs to be returned to him due to non-discrimination test failure.

What do you do in such a case where there is not enough money in the account left to do the test refunds?

[Guest spritcha]

I think you can reclassify part of the hardship withdrawal as a return of excess. This may be as easy as issuing 2 1099Rs: 1 with a code 1 for the hardship and code 8 for the return of excess.