Hardship distributions/Loans

[Guest chris4013]

A participants 401k balance is 4,000. His life to date contributions are $5,000.

He has a residence hardship of $7,000. The plan allows loans.

Please calcualte his net hardship and loan amounts? Please also discuss the issue that since he can not get any more to cover $7,000 he will more than likely not be able to repay the loan.

Thank you

[QDROphile]

Search using the terms "hardship" and "loan" and you will find some relevant discussions.

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You don't have to require a participant to take a loan if it will cause further hardship. It sounds like this is the case for your participant.

For hardship from the deferral source, you can only take out the amount you have actually deferred. This participant does not have any gains on his deferrals so he can withdraw the entire amount of $4,000.

If the participant wants more then he would have to take a loan for the difference assuming the plan only allows hardships from the deferral source. However, he technically will have to argue to the plan administrator that any amount over the loan amount will cause him an undue hardship.

You also said that he will likely not be able to pay the loan. Since the plan administrator already knows this (I assume), they should not allow the loan since they know it will probably not be paid.