The hardship rules require deferrals to be suspended for 6 months, not discontinued. The hardship withdrawal is not restricted to the purchase price and can include other items that are directly tied to the transaction such as closing costs. Hardship withdrawals are an optional provision that may or may not be drafted in 401 (k) or 403 (b) plan documents. The hardship withdrawal provision is an optional feature that can be included in a retirement plan to allow participants to access all or a portion of their account to satisfy an “immediate and heavy financial need.” There are several criteria that are used to determine whether the financial hardship is sufficient to qualify for a withdrawal using this feature. Obviously, a participant cannot withdraw more than he or she has available in the plan. If you are using the IRS safe harbor definitions and your hardship withdrawal form asks the participant to certify that they are using it to pay medical expenses (with a signature and date) I would think that you could grant the request. The IRS defines a hardship as having an immediate and heavy financial need like a foreclosure, tuition payments, or medical expenses. The regulations have two different standards that can be applied – the safe harbor standard and the non-safe-harbor standard. In other words, sponsors do not have to undertake a financial investigation of the participant. The maximum amount of the hardship distribution is basically the actual amount of the applicable expense minus whatever amounts a participant can access from sources outside the plan. We bring decades of experience, supported by the resources to deliver comprehensive solutions for your clients. An example of this might be a request to cover medical expenses that the sponsor knows are covered by the company-provided medical plan. If using other resources is just inconvenient or carries a fee, that is not enough to get out of it. hbspt.cta._relativeUrls=true;hbspt.cta.load(3113501, 'c3ef3c39-7659-4509-bfea-96398bed198d', {}); A properly drafted document is the foundation of achieving the company's objectives and keeping the plan in operational compliance. The IRS approves eight reasons for hardship withdrawals, including payment of medical bills for the employee or his dependents. Documentation to support that the hardship distribution was properly made according to applicable plan provisions and the Internal Revenue Code. One of the most clear-cut examples where this would come into play is with the purchase of a primary residence. Simply being a week behind on rent or wanting to avoid a late payment fee from the mortgage company is not sufficient. These expenses are similar to medical expenses in a couple of ways. :confused: We have an employee thats looking to take a withdrawal for cosmetic surgery, and while I feel that probably doesnt qualify, Id like to be able to back it up. 401(k) Hardship Withdrawal Documentation To receive the funds, you will need to talk to your plan sponsor, who might be a human resources representative at your workplace or … However, some companies prefer to limit that access so that accounts remain in the retirement plan to be used as intended—at retirement. Uninsured medical expenses for yourself, your spouse, or your dependents. As a result, the participant would only be required to use other resources to the extent it would not jeopardize his or her ability to obtain the mortgage. :8��{��3`���[���+�0�i�
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���T� 401(k) withdrawals vs. loans: Look at the pros and cons 401(k) withdrawals Depending on your situation, you might qualify for a traditional withdrawal, such as a hardship withdrawal. For a distribution from a 401(k) plan to be … There is an exception for this type of situation, but it should be applied with caution. The CARES Act eliminates the 10 percent penalty on withdrawals; 401k loans incur no penalties as long as they’re paid back within the prescribed time frame. Some 401 (k) plans allow withdrawals for financial hardships, including buying a house, paying medical bills, taking care of college expenses, and stopping eviction or the foreclosure of your home. Proof of the actual distribution made and related Forms 1099-R. If you choose a 401k withdrawal, you will have to pay income taxes on that money, though you can spread those tax payments out over time, up to three years. to the extent loans are permitted. 06/15/2015. 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