On 11/9/2018 the IRS released proposed amendments to the 401(K) Plan Hardship Distributions regulations. These amendments result from the Tax Cuts & Jobs Act of 2017 (Tax Act) and the Bipartisan Budget Act of 2018 (Budget Act).
The proposed regulations include revisions to the rules for determining if the distribution is necessary to satisfy an immediate and heavy financial burden by eliminating:
- The requirement that employees be suspended for 6 months from making salary deferral contributions; and
- The requirement that employees take plan loans prior to obtaining a hardship distribution.
The facts and circumstances determination of financial need has been eliminated. There is now one general standard provided under which the hardship distribution may not exceed the amount needed to satisfy the financial burden, including amounts needed to pay any income taxes or penalties. Employees must take any other available distributions before taking a hardship distribution.
The proposed regulations also expand the money sources available for hardship distributions. Hardship distributions may be taken from Salary Deferral, QNEC, QMAC and Safe Harbor Matching, as well as earnings on these amounts.