Hardships for terminated people

[Brian Gallagher]

Can a terninated person take a hardship? I say no, since it's considered an "in service withdrawal". Someone in my office insists he took one from his prior 401(k) after he left the company.

In this specific case, this person (no the guy in my office) needs only $2500 and the plan does not allow for partial withdrawals.

[Guest kowen]

I think some plans that have a longer turnaround time onn processing distributions will expedite the process if someone has an emergency and they call it a "hardship withdrawal." You might try suggesting that he roll over the rest into an IRA.

[Alf]

One of the safeharbor conditions for hardship is that they have exhaused all taxable distributions from qualified plans. Usually, terminated people are eligible for full distributions, so they are frequently not eligible for hardships.

[Jed Macy]

The issue of hardship pay outs has two distinct aspects to it.

First is the hardship withdrawals that are allowed from Deferral Accounts of 401(k) plans to currently employed participants.

Second is a hardship distribution to formerly a employed participant from any account (not just their Deferral Account). This is usually found in plans that do not allow benefit distributions immediately upon terminatiom of employment. If the document does not provide for this, then there is no basis to allow a hardship distribution to a terminated participant.

When faced with the need to get some benefits paid to a terminated particpant before we know how much to pay from a plan that provides only for total distributions, I have used the "2 check" total distribution method. Pay him $2,500 now and the balance as soon as you know how much.

[Kirk Maldonado]

What does the plan say?

[mbozek]

Either follow Kirks advice or the particpant can make a direct rollover to an IRA and then withdraw 2500 subject to income tax and penalty.