Hardship Distribution before In-Service

[Vlad401k]

With the recent change in provisions for Hardship distributions for 2019, I understand that you now don't have to take a loan before taking a hardship. However, my understanding is that you still have to take an in-service distribution (if it's available) before a hardship. Is that correct?

 

Let's say a plan allows the participant to take an in-service distribution only from the Rollover source. And the hardship is allowed only from the deferral source. Let's say the participant has $10,000 in Rollover source and $50,000 in Deferral source. He would like to take out a hardship distribution for $50,000. Which option do you think would be correct:

 

1) Process an in-service request for $10,000 and a hardship request for the remaining $40,000 or;

2) Process the hardship request for the entire $50,000

 

So, if the participant wants to take out more than what's allowed under the in-service conditions, can he just take out the entire amount as a hardship (assuming he has the documentation for a hardship)?

 

Thanks.

[C. B. Zeller]

A participant is still required to obtain all other currently available distributions from the plan and any other plans maintained by the employer before they can take a hardship distribution.

I agree he has to take the $10k from the rollover source (subject to mandatory withholding) before the hardship can be taken from the deferral source.

[Larry Starr]

4 hours ago, C. B. Zeller said:

A participant is still required to obtain all other currently available distributions from the plan and any other plans maintained by the employer before they can take a hardship distribution.

I agree he has to take the $10k from the rollover source (subject to mandatory withholding) before the hardship can be taken from the deferral source.

Yes, option 1 is the correct response.

[TPABob]

Is this a hardship distribution as we would normally think of it, or is it just a new allowable type of distribution similar to birth or adoption distributions added by SECURE? I don't see anything in the CARES Act that indicates it would be considered a "hardship".

[BG5150]

I would posit:  what's the difference?

They are taxed the same.  Both money sources are 100% vested.

Now that h'ships are possible from earnings on the 401(k) sources, there is no reason to keep track of the h'ship amounts over the years.

[TPABob]

I'm thinking, if it's a hardship, you're required to take all other distributions available to you first. So for example, if you're under 59 1/2 and have rollover money in the plan, and the plan provides for distributions from the rollover source, you would have to pay the 10% early withdrawal penalty, whereas if the distribution under the CARES Act is a new stand-alone distribution type, you can go right to that and avoid the 10% penalty. Furthermore, the distribution from the rollover source would not be able to be paid back, whereas the CARES Act distribution would.