Hardships for "Primary Residence"

[Guest lwhittle]

I have a plan participant applying for a second hardship for a primary residence. She bought the first home less than 2 years ago, and pending amounts available, wants now to rent this home and buy another one.

I seem to recall some rule about the time you must own the home. Does anyone know of any restrictions in this regard?

[QDROphile]

How about hardships distributions are available only if you have no other assets that can cover the need? The real estate baroness seems to have other assets.

[MWeddell]

I doubt that there's a legal barrier to granting the second hardship. The 401(k) regulations regarding hardship don't require the participant to stay in the first primary residence for a set time period. Most 401(k) plans (read your plan document to confirm this) use the safe harbor resources test so that as long as the participant has no other distributions or loans available under the plan and is willing to accept a 6-month suspension of contributions, then he or she can get the hardship withdrawal even if the participant has other assets.

[KIP KRAUS]

How does one have a hardship related to the purchase of a primary residence when in fact that person already owns a primary residence?

I’m not sure that the willingness on the participant’s part to except the 6-month suspension of contributions is all that is required for a hardship withdrawal.

I’m also not sure that hardship withdrawals are intended to have a person become a real estate magnate, or to go into any kind of business.

In my opinion there is no hardship in the case of your employee.

[Mike Preston]

Originally posted by KIP KRAUS

How does one have a hardship related to the purchase of a primary residence when in fact that person already owns a primary residence?

I don't think there are any restrictions on moving from one residence to another. I think the participant would have a pretty good position against the plan if it denied.

[Guest Pensions in Paradise]

See 1.401(k)-1(d)(2)(iii). "A distribution is not treated as necessary to satisfy an immediate and heavy financial need of an employee to the extent ... the need may be satisfied from other resources that are reasonably available to the employee. ...Thus, for example, a vacation home owned by the employee and the employee's spouse, whether as community property, joint tenants, tenants by the entirety, or tenants in common, generally will be deemed a resource of the employee. ... A distribution generally may be treated as necessary to satisfy a financial need if the employer relies upon the employee's written representation, unless the employer has actual knowledge to the contrary, that the need cannot reasonably be relieved: ... By liquidation of the employee's assets."