Hardships and Special Tax Notice

[austin3515]

Are people providing special tax notices for hardship distributions? I get that it's not an eligbile rollover distribution, but it seems like there should be some documentation warning them about the 10% penalty tax. Truth be told, we've been sending the same Special Tax Notice that we've been sending for termination distributions just to make sure they knew about the penalty taxes.

[12AX7]

We do. Our notice does reference Hardship Distributions, but only that these amounts cannot be rolled over. I think you're supposed to provide the notice prior to any distribution, if I'm not mistaken.

[austin3515]

From 402(f)

(f) Written explanation to recipients of distributions eligible for rollover treatment

http://' target="_blank">(1) In general The plan administrator of any plan shall, within a reasonable period of time before making an eligible rollover distribution, provide a written explanation to the recipient—

But it does seem like some notice should be provided. I'm glad I'm not the only one using the same 402f notice for purposes of hardship distributions. But I'm wondering if perhaps we just edit out the pieces that don't apply to the ability to rollover?

[GMK]

I agree with you about giving participants notice of down side factors.

One way is to make up a general cover letter for hardships that explains that it's not rollover eligible but brings attention to the relevant parts of the rollover notice, like the 10% penalty section.

Then again, if all you want mention is the 10% penalty, copy that section into the hardship form letter and skip the Rollover Options notice.

[doombuggy]

I always give the STN with the hardship dist. We have a hardship application, and it outlines the safe harbor reasons. I believe it also covers the 10% early w/d penalty, but I don't have it in front of me at the moment.