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Anne
Anne, Master Tax Preparer
Category: Finance
Satisfied Customers: 2355
Experience:  Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
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In a prior tax year, approximately 5-6 years ago, a free

Customer Question

In a prior tax year, approximately 5-6 years ago, a free employee service provided consultation with an attorney who indicated I could withdraw from my MetLife account for an allowable education for my son.
This was supposed to be a "hardship withdrawal," which is how I stated and requested it throughout the withdrawal process with Metlife, and expected to be subject one-time as income taxation for the withdrawal used to pay for my son's school.
I believe that Metlife has caused me to be "taxed," year after year, via a form they file with IRS, that appears to duplicate income that apparently alludes and has been "misprocessed" as issuance of income as a "loan, that requires repayment or payment of accumulated interest." I believe I have paid some of that, but would need to investigate this with Metlife. When I called them and asked who do I send a complaint letter to, I was assured this problem would be corrected, but it was never resolved, or even followed back as a professional courtesy.
Regretfully, my life is under constant problem status, e.g. family problems, illness, divorce, aging parent medical trauma and care problems, ongoing financial problems, workplace, etc.
Submitted: 1 month ago.
Category: Finance
Expert:  emc011075 replied 1 month ago.

Hi. My name is ***** ***** I will be happy to help you.

From what type of account did you take the hardship distribution? 401K or any other type of retirement account?

Customer: replied 1 month ago.
Other type of retirement account, but uncertain of correct reference. It came from a $25 contribution (unsure if twice a month with payday, or if just once a month).
Expert:  emc011075 replied 1 month ago.

Ok. You probably do not remember if it was pre tax or after tax?

Customer: replied 1 month ago.
I don't know if I kept a copy of the tax form filed, but I could look it up. The attorney had instructed me to file a "hardship withdrawal" on a specific form, but it clearly looks as if MetLife incorrectly processed my request as a "Loan" and continues to report to me as loan balance due and interest that has accumulated since the "loan." The attorney had confirmed that my retirement account could be used for "educational" purposes, allowable under the "hardship withdrawal" option, and the withdrawal had a one-time inclusion as "taxable income" that was used to pay my son's school.
Expert:  emc011075 replied 1 month ago.

Employer sponsored retirement plans, the type that comes out of your paycheck and the employer may or may not make matching contributions are usually pre tax. Which means, they are always taxed when distributed, regardless what the funds are used for. A hardship distribution does not receive a preferential treatment, in opposite, a hardship distribution before 59 1/2 is subject to penalty and income tax. The IRS does not favor hardship distributions at all.

The penalty exception for education is only available for distributions from IRA (individual retirement accounts, not employer sponsored).

If the Metlife processed the distribution as a loan and you missed the payment or left the employer before you paid off the remaining balance, the "loan" was automatically converted to a distribution.

Hardship distributions are not allowed from IRAs so unless you had ROTH type of account, the entire distribution would be taxable.

Expert:  emc011075 replied 1 month ago.

Did Metlife issued you any type of 1099R form?

Customer: replied 1 month ago.
Apparently I didn't make it clear enough. I paid the penalty to IRS, and it was probably a 1099R that was sent to me by MetLife. But again, I paid that penalty as an early, "hardship withdrawal," NOT as a loan, but it appears MetLife has applied it as a loan, in error, as the form I completed and filed with that year's tax return indicated it was a "hardship withdrawal, NOT loan" and therefore should NOT be subject to Metlife's annual distribution of a form that requires I claim a "miscellaneous income" of any kind. But they also continued the balance (didn't reduce it by the withdrawal?), and carry an accumulated interest due, and this is what I called about and was assured the problem would be reviewed/resolved. Then life difficulties kept me from timely follow back, and I came across your site, paid money to join membership, and seek legal help. Your prior reply did not answer anything I didn't already know having met with an attorney who advised the hardship withdrawal could be made under IRS penalty (and this was not ever intended or indicated as a borrowing from my account, but a WITHDRAWAL!!). Now, I'm asking what to do given MetLife didn't correct this matter, given my legal options for retro-active correction.
Expert:  Anne replied 1 month ago.

Hi

Different Expert here. I'm Anne. I've been preparing taxes for 29 years, and I'll be happy to help you.

You have not provided enough information for us to answer your question or help you yet, and here's why I say that:

A loan is NOT considered to be income unless or until you default on it. Additionally, you can only be penalized on INCOME, and NOT on a "loan" So if, as you say, you paid the penalty, then MetLife must have considered at least part of the distribution to be a withdrawal.

In order for us to help you, we need to know what MetLife considers the distribution......is it income, subject to tax and penalty, or, is it a loan........it almost sounds as if they treated at least part of the distribution as taxable income (withdrawal) and part as a loan......

Regardless of how MetLife reports the distribution, (hardship withdrawal, or loan) your true problem lies with MetLife. As tax experts, we can not change/correct a reporting document. You need to find out how MetLife is reporting the distribution to the IRS.

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