Roth Hardship Withdrawals

[Nassau]

Participant requested a Roth Hardship withdrawal. Client indicated to withhold 20% but system will not allow this. The participant is not 59.5 so should this be processed tax-free?

[ETA Consulting LLC]

Let's suppose that the amount being distributed consists of $5,000 ($4,800 in contributions and $200 in earnings). You instruct the system to withhold 20% ($1,000). Would that seem appropriate?

Also, hardships are not eligible for rollover. Therefore, there is no "mandatory" 20% withholding. Did the participant elect to have 20% withheld? If so, I'd try applying the 20% to only the earnings and see if this is what the system is doing.

Of course, we know there may be a 10% early withdrawal penalty on the entire amount which may make a 20% withholding from a Roth Contribution seem reasonable in this case. I'm just trying to imagine what the system could be doing in this particular instance.

Good Luck!

[masteff]

It does seem odd a system won't allow because it shouldn't matter the source or taxability of the funds if the participant requests it. Theoretically, participants should be able to elect 100% withholding and a system allow it. Perhaps you need to try a different withholding option if it has one (for example if it has a "20% mandatory" box versus an optional "other" percent in which you could enter 20%).

If all else fails I'd contact the system provider and ask them how to process it because this participant can't be the only one who's ever wanted w/holding from this type of w/drwl. Who knows, might be some obscure setting you need to change.