Share

Northwest OH Legal Blog

Tuesday, March 27, 2018

Restrictions on Hardship Withdrawals Eased under 2018 Budget Act

On February 9, 2018, Congress passed, and President Trump signed, continuing appropriations legislation (the “Budget Act”) to allow the United States Government to continue to operate.  The Budget Act includes changes to some of the current restrictions on hardship withdrawals from 401(k) plans and similar defined contribution plans.

Background.  Under current rules for 401(k) and similar defined contribution plans, hardship withdrawals are limited to the amount of a participant’s elective deferrals contributed to a plan, and participants are prohibited from making new elective deferral contributions to the plan for six months after they receive a hardship withdrawal.  Pursuant to the Budget Act, however, participants will be permitted to withdraw not only the amount of their elective deferrals but also—

  • the earnings on those deferrals, plus

  • any employer contributions, including matching and profit-sharing contributions

as part of a hardship withdrawal, and the mandatory six-month suspension of elective deferrals to a plan following a hardship withdrawal has been eliminated.

Key Changes.  Below is a summary of the key changes to the current rules governing hardship withdrawals from defined contribution plans.

  • Removal of Six-Month Suspension of Elective Deferrals to Retirement Plans after Hardship Withdrawal.The Budget Act directs the Internal Revenue Service (“IRS”) to change its administrative guidance to allow participants who take hardship distributions from a retirement plan to continue making elective deferrals to the plan. The revised regulations will apply to plan years beginning in 2019.

  • Removal of Loan-Before-Hardship Withdrawal Requirement.Beginning in 2019, the Budget Act removes the requirement that participants apply for and receive a loan from their plan account before taking a hardship withdrawal. 

  • Expansion of Types of Contributions Subject to Hardship Withdrawal.Beginning in 2019, the Budget Act permits a participant to withdraw the plan sponsor’s qualified nonelective contributions, qualified matching contributions, and profit-sharing contributions in addition to his or her elective deferrals to the plan.

  • Relief for Money Returned to Participant Following Federal Tax Levy.Retroactive to January 1, 2018, the Budget Act allows an individual to recontribute to an employer-sponsored plan (if the plan so allows) or to an individual retirement account (“IRA)” an amount withdrawn—and interest earned on that amount—to satisfy an IRS levy on plan assets if the withdrawn funds were later returned to the individual by the IRS.

Commentary.  Some commentators are welcoming these changes to the restrictions on hardship withdrawals, citing the difficulty of administering the mandatory six-month suspension of elective deferrals after a participant receives a hardship withdrawal.  Other commentators believe that eliminating the six-month suspension will mitigate the tendency of participants to permanently stop making elective deferrals to their 401(k) plan after they receive a hardship withdrawal.

 



Archived Posts

2018
2017
December
November
October
September
August
July
June
May
April
March
February
January
2016
December
November
October
September
August
July
June
May
March
February
January
2015
November
October
September
August
July
June
May
April
March
2014
October
September
July
June
May
April
March
February
January
2013


With an office located in Toledo , OH Allotta Farley Co., L.P.A. serves clients throughout northwest OH with various legal matters. Areas of service include Allen County, Ashland County, Auglaize County, Crawford County, Defiance County, Erie County, Fulton County, Hancock County, Hardin County, Henry County, Huron County, Lucas County, Marion County, Mercer County, Morrow County, Ottawa County, Paulding County, Putnam County, Richland County, Sandusky County, Seneca County, Van Wert County, Williams County, Wood County, Wyandot County.

Disclaimer
Hiring an attorney is an important decision which should not be based solely on advertising. The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. We invite you to contact us and welcome your calls, letters and electronic mail. Contacting us does not create an attorney-client relationship. Please do not send any confidential information to us until such time as an attorney-client relationship has been established.



© 2018 Allotta Farley Co., L.P.A. | Disclaimer
2222 Centennial Road, Toledo, OH 43617
| Phone: 419.535.0075

Labor Union Representation | Taft–Hartley/Multiemployer Benefit Plans | Workers' Compensation | Unemployment/Appeals | ERISA Disability | | Attorneys

Law Firm Website Design by
Zola Creative