New clarifications announced for hardship distributions from retirement plans
A retirement plan may, but is not required to, provide for hardship distributions. Many plans that provide for elective deferrals provide for hardship distributions. Thus, 401(k) plans, 403(b) plans, and 457(b) plans may permit hardship distributions.
If a 401(k) plan provides for hardship distributions, it must provide the specific criteria used to make the determination of hardship–an immediate and heavy financial need of the employee or his or her spouse or dependents–and the amount must be necessary to satisfy the financial need.
Thus, for example, a plan may provide that a distribution can be made only for medical or funeral expenses, but not for the purchase of a principal residence or for payment of tuition and education expenses. In determining the existence of a need and of the amount necessary to meet the need, the plan must specify and apply nondiscriminatory and objective standards.
The IRS has published a FAQ regarding hardship distributions from retirement plans, or you can contact your ShindelRock tax professional for more information.