hardship from roth rollover

[pmacduff]

Plan allows for hardship withdrawal of both 401(k) and roth deferrals as well as 100% of rollover accounts.

One of the big 401(k) vendors is telling me that the participant cannot have 100% of her roth rollover account only the contirbutions. They apparently must have obtained an original contribution figure from the participant when she rolled the roth assets into the Plan.

Other than the taxation issues for the participant is there any reason she cannot take 100% of her roth rollover account as hardship if the Plan allows?

This appears to be a rare occurrence but I can't believe that this vendor has not come across this particular situation.

[BG5150]

Does the plan allow for distributions from rollover accounts at any time? If so, the person has to take that money first anyway.

If not, I don't see why the entire source would be allowed for h'ship. Why is it different than a "regular" rollover account?

And lastly, (should be firstly) WHAT DOES THE PLAN SAY?

[pmacduff]

Plan does not allow for distribution from rollover accounts at any time only in the event of termination of employment and hardship.

I did check the Plan - see my first sentence. it seems to be pretty clear in the Plan Doc, AA and SPD that 100% of rollover accts are allowed for hardship.

Just trying to figure out how to get the vendor to process this and wanted to be sure there wasn't some obscure roth rule I didn't know .

[Belgarath]

I'm with you. I'd ask for them to provide a citation to support their position, if they are going to stick with it. Perhaps the service rep there is equating the rollover "principal" amount with elective deferrals for these purposes? Who knows...

[masteff]

While the following IRS FAQ items is about non-rollover Roth, I see no reason why it would dramatically change by being rollover (see the part that I underlined): http://www.irs.gov/Retirement-Plans/Retirement-Plans-FAQs-on-Designated-Roth-Accounts#25

Since I make designated Roth contributions from after-tax income, can I make tax-free withdrawals from my designated Roth account at any time?

No, the same restrictions on withdrawals that apply to pre-tax elective contributions also apply to designated Roth contributions. If your plan permits distributions from accounts because of hardship, you may choose to receive a hardship distribution from your designated Roth account. The hardship distribution will consist of a pro-rata share of earnings and basis and the earnings portion will be included in gross income unless you have had the designated Roth account for 5 years and are either disabled or over age 59 ½.

[Belgarath]

I respectfully (and strongly) disagree. The section you cite is in fact referring to "employer contributions made to a plan pursuant to a cash or deferred election..." - take a look at 1.401(k)-6, which defines "elective contributions."

Rollovers are not made pursuant to a cash or deferred election. The employee has no option to receive a rollover as cash compensation from the employer.