Purchase of "land" - "Purchase of Primary Residence&quo

[Guest CJK]

A 401(k) plan uses the "safe-harbors" for both purposes relative to hardship withdrawals. As we all know, one of the "safe-harbor" hardship events is the "purchase of one's primary residence." What are your thoughts relative to a participant who applies for a hardship withdrawal in order to purchase "land" on which he plans to build his primary residence in the future? I sort of remember this issue coming up at a conference but I am still researching and hoped that maybe someone could shorten my search.

[Guest Benefits Maven]

I dealt with this at a previous employer - land purchase is not the same as purchase of a primary residence and does not qualify as a hardship. This is not stated in the regs, but evidently there has been some case work on the subject which has clarified the question. I haven't been able to find specifics, but I double checked with our administrator just to be certain I was remembering correctly and they agreed. Hope that helps

[R. Butler]

I don't the know the answer, however, just FYI there is a recent message thread that seems to arrive at a different answer from Benefit Maven. I can't figure out how to insert links, but if you hit your "More Like This" button and look at the thread that says Hardship Distributions you'll see a fairly detailed discussion of this issue.

[Guest Benefits Maven]

I double checked with our current administrator (one of the big guys) and they agree that land does no qualify - that's two professional 401(k) plan administrators agreeing. I think that other thread was incorrect. Sorry.

[QDROphile]

I think the better answer is by UKH under the 401(k) thread started by Mr. Klose. However, as indicated by that response, the facts and timing are very sensitive and I would want to see the whole package that shows that the residence will be built as part of an integrated arrangement that will proceed apace. Any indications that the land would be sitting around by itself for any length of time, or that the arrangement (or a material part of it) is subject to significant contingencies, would nix the withdrawal. One comfort feature would be to allocate the withdrawal proceeds to several elements of the residence acquisition/construction rather than the land alone.

I also advocate sending the money to the escrow agent rather than the participant. If the deal does not close, there is a prospect of getting the money back into the plan without having a distribution. If you give the money to the participant, you have a more questionable prospect of avoiding treatment as a distribution, even if the participant wants to give the money back. Payment to escrow also is an indication that the money will be used for proper purposes.

[Guest CJK]

I appreciate all of the respondees' thoughts on the matter. I am still looking into the matter but a review of our comments illustrates that the issue is not "clean cut" and we as professionals are not missing something obvious.