Hardships and "gross up" for Federal, State or Local taxes

[Guest BM-VFCC]

Is it required that there is language in the Document or Adoption Agreement that speaks to the ability to 'gross up" the available Hardship amount to cover applicable Federal, state or local taxes?

Thanks

[Mike Preston]

Hardships aren't required, so your document can provide its own rules as to how hardships are implemented. Just follow your document terms.

[masteff]

Tax gross up is provided explicity in the regs. "For this purpose, the amount required to satisfy the financial need may include any amounts necessary to pay any federal, state, or local income taxes or penalties reasonably anticipated to result from the distribution."

[Mike Preston]

I sense a slight disagreement. If the plan is imprecise as to the amount being determined (some oblique reference to "financial need" as defined in the regulations, then you can include it. If the plan is precise and attempts to define "financial need" and does so without including a reference to grossing up the amount otherwise determined, it would violate your plan's terms to gross up. Better?

[masteff]

Sorry Mike, didn't mean to sound disagreeable... was just adding a secondary point to make sure it was clear that gross up was provided by regs and not just by standard practice. To the extent the plan uses the hardship safe harbor, gross up is inherent. I fully agree w/ both of your posts... how narrow or broad the plan language is really does a make a difference.

[Mike Preston]

In no way did I mean to imply that "disagreement = disagreeable"! I think we are on the same page now, anyway.