Hardship Distribution Request for Medical Expenses

[Guest jefe96]

I found a post about this question but it was 5 years old so I wanted a fresher response. A participant is requesting a hardship w/d under the safe harbor provision of medical expenses. However, he has indicated that he has already paid these expenses but now he is encountering a heavy financial need because he already paid the expenses with credit card and/or savings. My first thought is that he should not be granted a hardship because he has already paid the medical expenses and now his financial need is due to the lack of ability to pay his normal bills. Agree?

[austin3515]

You may authorize the distribution. In fact, what's worse is paying the hardship BEFORE the participant pays the bill, because you don't know for sure the hardship was incurred. You know with certainty now that they were in fact incurred. I mean if he's cying hardship for something three years ago, I might be a bit more skeptical, but you don't allude to any significant passage of time.

[Kirk Maldonado]

austin3515:

The IRS disagrees with you. I submitted a questioninvolving almost the same facts to the IRS by means of the ABA. The IRS response was that you cannot get a hardship distribution with respect to amounts that the participant paid in the prior year.

[austin3515]

i.e., not more than 12 months ago? I think that's kinda what I was saying (although I did not know of the 1 year standard). I got the impression that these costs were incurred recently.

[Kirk Maldonado]

As I recall, the response from the IRS just said the prior year. That could be two days if the expense was incurred on December 31 and the reimbursement was requested on January 2nd, but I doubt that the IRS would want to fight that case.

By the way, I interpreted your post as indicating that you might approve reimbursement of an expense that was incurred three years ago, which is what precipitated my post about the view of the IRS on this issue.

[austin3515]

That was just an extreme example. Denying a hardship from 2 days ago doesn't seem like a reasonable interpretation though does it?