Hardship Withdrawal plus Withholding Taxes in Cash

[KateSmithPA]

I know that a hardship withdrawal may be grossed up for taxes. May the participant receive the total grossed up amount in cash without any withholding at the time of the distribution? We know the participant will have to pay the taxes eventually.

Thank you.

Kate Smith

[Guest Sieve]

Yes.

No mandatory 20% witholding, so one-time payment withholding is waivable.

(By the way . . . I just love your rendition of "God Bless America". Haven't heard you sing it live in a long, long time, though!! )

[KateSmithPA]

Yes.

No mandatory 20% witholding, so one-time payment withholding is waivable.

(By the way . . . I just love your rendition of "God Bless America". Haven't heard you sing it live in a long, long time, though!! )

Thank you, Sieve, I get lots of requests!

I hope I asked my question correctly. For example, hardship amount is $1,000, plus $200 for federal, plus $40 for state taxes, plus $100 for penalty. So participant can take a cash withdrawal totalling $1,340 with no withholding?

Again, thank you.

Kate

[masteff]

I hope I asked my question correctly.

Yep, you asked correctly. Can elect zero withholding... but from my experience should be highly discouraged. At the very least, make it clear that if the employee fails to have enough cash when they file next April, they can't come back to the plan for those taxes (because it's being given to them now).

[Guest Sieve]

Yes. But, participant would need to complete IRS Form W-4P for there to be no withholdng. Otherwise, there'd be 10% (I believe) withholding for a one-time payment