Hardship - Building Principal Residence

[PFranckowiak]

Plan participant has taken the maximum allowed loans for the plan. Wants a hardship to finish building his principal residence - Wants $90,000. Wants taxes at about 43% because below 59.5 and in 33% tax bracket.

I was thinking that all he could get if he were buying a house would be the required downpayment and assorted closing costs.

With building a home - I think you first take construction loans and then do a closing on the home. Then once you are doing the final loan for the home you could apply the downpayment etc.

Am I correct here? I read someplace that you couldn't use hardhip to purchase land since you cannot reside on bare land. Plan uses safe harbor hardship rules.

I am thinking he could not get a hardship until he actually gets the mortage on the home, not for paying expenses (construction costs) to build the home.

Thanks for you help.

Pat

[DMcGovern]

A similar question was posed to TAG (Technical Answer Group) a couple of years ago. They responded that a hardship to purchase materials to build a primary residence is "part and partial" to purchasing your primary residence and would be allowed, as long as the other requirements for taking a hardship distribution are met.

[QDROphile]

If the particpant borrows from other sources to construct, the hardship money cannot take out the financing. Payment of the debt on a home is not a purchase of the home.