Guest Hunter401k Posted January 15, 2013 Posted January 15, 2013 I have a Safe Harbor 401(k)/Profit Sharing Plan that allows both loans and hardship distributions. I have a participant that wants to do both silmultaeously (take a hardship distribution, then take a loan of 50% of the remaining balance to buy a primary residance). I don't see anything in the regs that says this isn't allowed, I really just wanted to confirm. Has anyone ever had a similar situation? Any insight? Thanks in advance!
Guest Hunter401k Posted January 15, 2013 Posted January 15, 2013 Let me re-iterate a little bit. The investment agent on the case told the participant that "the law" allows her to take up to $10,000 in a distribution for the purchase of her first home, then advised if she needed more money she could take a loan. Has anyone ever heard of that $10,000 distribution allowance because I am not familiar with it?
BG5150 Posted January 15, 2013 Posted January 15, 2013 Were her gross 401(k) contributions $10,000? 'Cause she can't take the earnings. Also, she should take the loan first. She needs to take all available loans & distributions before she can take a hardship. QKA, QPA, CPC, ERPATwo wrongs don't make a right, but three rights make a left.
david rigby Posted January 15, 2013 Posted January 15, 2013 At the risk of being obvious, what does the Plan say? I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.
Belgarath Posted January 15, 2013 Posted January 15, 2013 I suspect the "$10,000" the investment agent is referring to is actually the $10,000 exemption from the premature distribution penalty tax for a first-time homebuyer distribution from an IRA. This does NOT apply to a 401(k) plan. masteff 1
MWeddell Posted January 16, 2013 Posted January 16, 2013 Belgarath is right. The exemption from the 10% early distribution excise tax for distributions to first-time home buyers applies only to IRAs. See Code Section 72(t)(2)(F). Typically, the participant can apply for both a loan and a hardship, but the loan must be granted first unless the circumstances make it appear that the participant will not repay the loan.
401king Posted January 16, 2013 Posted January 16, 2013 With a Hardship, you must exhaust all other options first. The participant couldn't take a hardship, then take a loan. Would have to take a loan, then a hardship. They should get more money this way, if the major of the loan is taken from an employer contribution source. R. Alexander
K2retire Posted January 16, 2013 Posted January 16, 2013 Then there's the obvious question. If it requires both a loan and a hardship withdrawal from the plan, can the participant really afford the house?
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