Do You Have a Hardship?

Ever since Congress changed the rules to allow plan hardship withdrawals, hardship distributions have been continually increasing among plan participants. There are six safe harbor expenses which the IRS deems to be an immediate and heavy financial need: Purchase of a principal residence College tuition Funeral expenses Eviction from principal residence Medical expenses Repair expenses …

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Hardship Distribution Documentation

IRS requirements are surprisingly vague regarding hardship distributions. In the absence of clear-cut rules, we sometimes see hardship distributions with very little or no supporting documentation. As a plan administrator you should not only comply with the IRS requirements, but also document your compliance with these requirements. Let’s look at a few of the requirements …

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Hardship Distributions – IRS Guidelines

According to the IRS website, a retirement plan may, but is not required to, provide for hardship distributions. If a 401(k) plan provides for hardship distributions, it must provide the specific criteria used to make the determination of hardship. For example, a plan may provide that a distribution can be made only for medical or …

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Footnote Disclosures

Another year end has passed and now you are probably compiling and sending the 401(k) files to your third party administrator for them to complete their compliance testing, and other plan financial reports.  Many of these documents will then be requested by your 401(k) plan auditor.  Additionally your auditor will be requesting other Plan documents …

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Failure to Comply with Hardship Distribution Requirements

Plan Sponsors often fall short in one simple area of plan administration: record keeping. It is important that Plan Sponsors keep proper documentation for each area of the Plan.  One important area for this documentation is administering hardship distributions to participants. As described in our blog, “Hardship Distribution Requirements”, if your plan allows for hardship …

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Hardship Distributions Requirements

If your plan allows for hardship distributions, as a Plan sponsor you are required to verify that proper evidence has been obtained which verifies the participant has immediate and necessary need for the distribution. The Internal Revenue Service (“IRS”) has stated that certain expenses are considered immediate and necessary. These expenses include the following: • Medical …

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Required Federal Income Tax Withholdings from 401k Distributions

The IRS has various rules related to income tax withholding from 401k distributions. The most common rule is the minimum 20% that is required to be withheld from eligible rollover distributions. However other withholding requirements can result in either no required withholding or withholdings based on withholding tables used for wages. Eligible rollover distributions are …

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