Hardship Dist after age 59 1/2

[Lori H]

A participant wants to take a withdrawal from her account. She is over 59 1/2. The plan does not have in service distribution. Only loans and hardships. Since a hardship is not an eligible rollover distribution, she is only electing 10% FIT with held. However, the custodian of the account is stating that funds must have the 20% mandatory with holding since she is over 59 1/2. Is this accurate?

[masteff]

In this case, it's only a hardship in the eyes of the plan for the purpose of qualifying for the distribution. For tax purposes, 59 1/2 superceeds, so it's rollover eligible.

[ETA Consulting LLC]

Is this accurate?

No, the custodian is wrong as the 20% withholding applies to those distributions that are rollover eligible; per Section 3405 of the Code.

Good Luck!

[ETA Consulting LLC]

In this case, it's only a hardship in the eyes of the plan for the purpose of qualifying for the distribution. For tax purposes, 59 1/2 superceeds, so it's rollover eligible.

You jumped in front of me. Do you have a cite that I could review; I would stand corrected if so. I've never heard this one.

Section 401(a)(31) of the Code requires the plan to offer a direct rollover for amounts that are eligible to be rolled over. So, you're saying that, operationally, the plan must allow for these hardship amounts (after 59 1/2) to be rolled over? It is this, in conjuction with the fact that it wasn't rolled over that applied the 20% withholding.

It would be interesting that the plan wouldn't allow these amounts to be rolled over, but would impose the 20% withholding.

Again, I would stand corrected. It seems a bit inconsistent to discount the terms of the plan as the rule does relate to other section of the code.

Good Luck!

[masteff]

I'm willing to be corrected but I believe it's definitional of a CODA.

From 401(k)(2)(B):

(i)may not be distributable to participants or other beneficiaries earlier than—

(I)severance from employment, death, or disability,

(II)an event described in paragraph (10),

(III)in the case of a profit-sharing or stock bonus plan, the attainment of age 59 1/2,

(IV)in the case of contributions to a profit-sharing or stock bonus plan to which section 402(e)(3) applies, upon hardship of the employee, or

(V)in the case of a qualified reservist distribution (as defined in section 72(t)(2)(G)(iii)), the date on which a period referred to in subclause (III) of such section begins

[Bird]

I agree w/ETK. The terms of the plan say it's a hardship and that's what controls WH and rollover eligibility.

[Lori H]

402©(4)© does not mention mandatory on 59 1/2

[ETA Consulting LLC]

402©(4)© does not mention mandatory on 59 1/2

That's the best explanation thus far. It only states "hardship". The one thing we know about hardship is that it is not available if any other distribution is available under the terms of the plan. So, the only way 59 1/2 would count is if it were actually available under the plan.

Good Luck!