"The law changed the rules for 401(k) loans and
hardship withdrawals, making it easier to draw the money directly as a hardship without first getting involved in the loan process."
… The law changed the rules for 401(k) loans and
hardship withdrawals, making it easier to draw the money directly as a hardship without first getting involved in the loan process.
Following is a look at updates regarding plan operations: 1, the Internal Revenue Service's cost of living adjustment to the maximum elective deferral limit to Code Section 401(k), 403(b) and 457(b) qualified retirement plans; 2, the Bipartisan Budget Act's changes to the Code Section 401(k)
hardship withdrawal rules; and 3, the Internal Revenue Service's recently published Proposed Rule addressing, among other topics, the Tax Cuts and Jobs Act's changes to the definition of "casualty" in Code Section 165 and the effect of this change on Code Section 401(k) plan
hardship withdrawals.
As long as the applicable regulations are followed throughout the loan term, the transaction is not subject to tax or an early-withdrawal penalty (if under age 59 ) as would be the case with most outright distributions from a retirement plan, including
hardship withdrawals. From the plan sponsors' perspective, compliance with these regulations is necessary to maintain the favored or "qualified" tax status of the plan.
Furthermore, an employee cannot make voluntary salary deferrals to a SEP or take loans and
hardship withdrawals from one.
The course will review the following: An overview of 401(k) Plans, Legislative History of 401(k) Plans, Advantages and Disadvantages, Steps to Establish a 401(k) Plan, Types of 401(k) Plans, Design Options and Objectives, Participation Requirements, Loans,
Hardship Withdrawals and In-Service Distributions, Life Insurance Inside 401(k) Plans, and Annuities Inside Qualified Plans.
Levels of
hardship withdrawal activity also were low, with only 0.9% of DC plan participants taking
hardship withdrawals during the first half of the year, similar to the first half of 2016.
Moreover, this bill would allow workers who happen to take
hardship withdrawals to continue saving for retirement.
Documentation requirements may be reduced, although repayment rules are unchanged; the deadline for
hardship withdrawals under the hurricane provisions is January 31, 2018.
A profit-sharing plan may permit loans and
hardship withdrawals, but withdrawals before age 59 Vi may trigger income tax plus an additional tax of 10%.
Hardship withdrawals (which are different from a loan, which must be repaid to the plan) from 401(k) plans may also be possible in certain circumstances.
"They can take out
hardship withdrawals for true emergencies or things that might not be such true emergencies but they didn't plan well for," he said.
