Hardship withdrawal for expenses previously paid

[buckaroo]

We have a plan where a participant is requesting a hardship withdrawal for qualified medical expenses. The issue appears to be that the participant has already paid the outstanding bill. Is it possible to grant a hardship withdrawal for expenses that were previously paid? I would think not because the bill has been paid. If it were a hardship, then the participan would not have had the funds to pay the bill in the first place. Any thoughts would be greatly appreciated.

[david rigby]

Could someone else have paid the bill, as a loan?

[buckaroo]

I guess, but then I would think that it would still not be a hardship withdrawal as the funds did not have to be paid by the participant for the medical bills. It would now have to be repayment of a loan rather than payment of the medical bills. Would the loan, depending on purpose, be considered a need for a hardship withdrawal? Simply by getting the loan, I would think that they had the means to pay the bill and the hardship is off the table.

[david rigby]

Think outside the box: perhaps a relative loaned the money to the EE?

That just takes care of the immediate need to pay the invoice, but does it eliminate the hardship?

[Guest Sieve]

Remember, also, that a safe harbor hardship distribution is deemed to be on account of "an immediate and heavy" financial need if it is for certain reasons, without the need to demonstrate the actual financial need. And, the regs say one of those reasons for a hardship is "if the distribution is for -- Expenses for . . . medical care . . ." Other hardship provisions say the distribution must be for payment of certain expenses. So, it seems to me that medical expenses can already be paid before a hardship distribution is made/requested--although I might question it if the payment was made a very long time before the ahrdship distribution request, because then the distribution seems like an afterthought unrelated to the medical care expenses.

Besides, the health care provider may require that payment be made when receiving the services (or before leaving the provider's office), so there may be no opportunity, in some instances, to apply for a hardship distribution before payment has been made. As David says, the hardship is not eliminated just because payment is made first.

[GMK]

but does it eliminate the hardship?

For the sake of discussion,

isn't the loan one of the participant's "other sources" and

doesn't the loan take away the "immediate" aspect of the hardship, at least until the loan comes due?

Or isn't that how these things are regarded? (Just asking in general. I don't really need to know.)

[masteff]

My opinion is Sieve gets the gold star for the most complete answer (and I concur w/ him fully).

[Guest Sieve]

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