Repayment of Ineligible Distribution

[Guest new2this]

A participant received a hardship distribution which he used for a non hardship purpose.

The distribution will be repaid to the plan.

Are the repaid funds considered "after-tax" contributions in the participants account?

[Guest Sieve]

If, to the best of the Adminstrator's knowledge, the distribution was for a proper hardship reason, and there was no indication that it might be used otherwise, then its actual use is immaterial. In fact, a medical hardship distribution may be for expenses already paid, so use of that hardship distribution obviously will be for some non-hardship purpose.

Once a proper hardship distribution is made, I can't think of a theory that would support its return to the plan--especially after it is spent--unless the distribution was made in error and not spent. It is, after all, a distribution--not a loan--and distributions cannot be returned to the plan except through a rollover (unless erroneously made--and ultimate use of the hardship money generally ought not be an error).

But, hardship distributions cannot be rolled over, so--again--I see no logical way this money could be distributed, used, and then returned to the plan. Perhaps the individual should simply increases his/her deferrals.

[mbozek]

A participant received a hardship distribution which he used for a non hardship purpose.

The distribution will be repaid to the plan.

Are the repaid funds considered "after-tax" contributions in the participants account?

I dont understand what you mean by "was used for a non hardship purpose". The question is whether he was eligible to receive the distribution because a valid hardship event was incurred. The money itself is fungible and can be used for any purpose after it is paid because it will be deposited in the employee's checking account.