Principal Residence for Hardship Distribution - travel trailer

Would a travel trailer qualify as a principal residence?  Participant is wanting to purchase and place in a trailer park.  

I think it would be as long as it has a bathroom/kitchen, etc. 

In 26 C.F.R. § 1.401(k)-1, none of the four uses of the phrase “principal residence”, including the one that sets up a deemed immediate and heavy financial need, refers to a definition. 26 C.F.R. § 1.401(k)-1(d)(3)(ii)(B)(2) https://www.ecfr.gov/current/title-26/part-1/section-1.401(k)-1#p-1.401(k)-1(d)(3)(ii)(B)(2).

If a plan’s administrator does not rely on a participant’s § 401(k)(14) self-certifying claim, the administrator may use its discretionary authority to interpret the plan to discern the meaning of a principal residence.

Further, an interpretation about excluding from income a gain from one’s sale of her principal residence includes this: “Whether property is used by the taxpayer as the taxpayer’s residence depends upon all the facts and circumstances. A property used by the taxpayer as the taxpayer’s residence may include a houseboat [or] a house trailer[.]” 26 C.F.R. § 1.121-1(b)(1) https://www.ecfr.gov/current/title-26/part-1/section-1.121-1#p-1.121-1(b)(1).

Whether a trailer is someone’s primary residence or another residence is a distinct question.

This is not advice to anyone.

As @Peter Gulia states, the 401k regulations do not define “principal residence.”  However, there is solid IRS authority indicating that a mobile home, trailer, house trailer, or similar dwelling can constitute a “principal residence” for federal tax purposes (and should, without a prohibition, be relevant to the 401(k) hardship distribution rules).

The hardship regulations under IRC §401(k) use the term “principal residence.” The IRS and Treasury have long interpreted “principal residence” broadly under IRC §121.  Treasury regulations under §121 expressly recognize mobile homes and house trailers as residences.  Treas. Reg. §1.121-1(b)(1) provides:  “A residence may include a houseboat, a house trailer, or the house or apartment that the taxpayer is entitled to occupy as a tenant stockholder in a cooperative housing corporation....” (emphasis added).

The regulations use the phrase “may include” denoting that the regulations list is not exhaustive but illustrative.  We have consistently viewed this regulation as strong support for the proposition that recreational vehicles, mobile homes, and trailers can be principal residences for the purpose of a 401(k) hardship distribution.

The issue here really is whether the travel trailer is truly the participant’s principal residence.  This becomes a facts and circumstances determination.  So, you may need more facts such as: where the participant actually lives, their mailing address, utilities, etc.  There is a list of factors in the regulation.  The determination is easier when there is a foreclosure with an actual mortgage/security interest.  If the lender is foreclosing on the mobile home itself, or the land and improvements including the home, that fits more comfortably within the hardship safe harbor.

Some recordkeepers are overly restrictive and assume a “principal residence” must be fixed real property. There is language in the 121 regulations stating that a residence doesn't include " personal property that is not a fixture under local law" which the recordkeepers point to but I believe this is a misapplication of this rule.  They say a trailer with wheels isn't fixed to the property.  These recordkeepers usually citing state law regarding the definition of a residence in the state in question.  My recollection is that there is substantial authority contradicting that position for federal tax purposes.  

Note if youR plan uses self-certification… without actual knowledge…

PLENTY OF PEOPLE LIVE AND WANT TO LIVE IN TRAILERS, MOBILE HOMES, GEODESIC DOMES,  DOUBLE WIDES, RVS, MOTOR HOMES, CAMPERS, VANS, AND TENTS AND IT IS THEIR PRIMARY RESIDENCE AND, IF IT IS NOT AFFIXED TO THE GROUND, ALLOWS THEM TO TRAVEL IN ORDER TO CONDUCT THEIR BUSINESS.   

ONE MAN'S CEILING IS ANOTHER MAN'S FLOOR.  

In my view, a plan’s sponsor should not require, or even permit, a plan’s administrator to decide whether an individual’s circumstances fit a deemed immediate and heavy financial need.

Instead, a plan should provide § 401(k)(14)’s self-certifying claim as the way a participant gets a hardship distribution.