He goes on to advise that determining from which account to draw first is part art and part science and cautions that although
hardship distribution provisions from a 401(k) are rarely discussed, in the last few years there has been an increase in requests for
hardship distributions.
The withdrawals do not have to be repaid, but the employee must pay taxes and any applicable penalties on the
hardship distribution.
For example, loan and
hardship distribution features may rarely be used by a high-income group and, when used, may require very little administrative time and effort.
For example, the automatic enrollment provisions for 401(k)and 403(b) plans are already in effect, so you may wish to provide
hardship distribution to beneficiaries who are neither spouse nor the the dependent of the plan participant.
Currently, a plan may make a financial
hardship distribution only where it is necessary to meet an immediate and heavy financial need of the employee.
In addition, you won't be allowed to make elective contributions into your 401(k) plan for the 12-month period following the
hardship distribution.
8] "Personally owned" assets such as marketable securities or certificates of deposit are available assets which would have to be used before a distribution from a QDOT could qualify as a
hardship distribution.
Slightly more than 2% of participants took a
hardship distribution in the past year compared with 2.
The
hardship distribution rules mandated that (1) these distributions be made on account of an "immediate and heavy financial need" of the participant or the participant's spouse or dependent and (2) the distribution be necessary to satisfy their financial need.
28, 2005, and before Aug 29, 2005, took a distribution such as a
hardship distribution from a 401(k) plan or 403(b) annuity or a qualified first-time homebuyer distribution from an IRA to purchase or construct a home in the Hurricane Katrina disaster area, but it was not purchased or constructed as a result of Hurricane Katrina, could recontribute the funds to the plan without any tax consequence.
Distributions on cancellation of deferrals following a
hardship distribution from a qualified retirement plan (Regs.
Those who withdrew funds for a first-time home purchase from an IRA or a
hardship distribution to buy a home from a 401(k) or 403(b) plan, after February 28 and before August 29, 2005, but who cannot purchase or construct the home because of Hurricane Katrina, may pay the funds back to their IRAs or plans without penalty by February 28, 2006.
