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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 IRA plans may permit hardship distributions.
If a plan provides for hardship distributions, it must provide the specific criteria used to make the determination of hardship. 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. (Reg. §1.401(k)-1(d)(3)(i))
So. The answer to your question is withing the criteria set out by the employer.
If on the other hand, you are asking (as many of my clients confuse) whether you qualify not to pay the 10% penalty on early withdrawal, no this does not meet IRS criteria.
Hardship criteria set out by an employer is completely up to them and varies. If that is your question, only the employer can answer it for you.
My Plan Administrator says she only needs to know that I have a bona fide hardship, but she's not interested in proof. That is between me and the IRS. I'm 63, so I don't think I get the 10% penalty.
You are correct. There would be no penalty. In these circumstances, I am not sure what hardship has to do with anything.
You will have to pay tax on the distribution if that is what you are asking.
There is no exception to paying tax on a distribution . Hardship comes up in 2 ways. Avoiding the penalty and determining whether a employer restricted fund can be accessed. Neither seem to be the case here.
Well, the categories of hardship laid out by the IRS lists things like medical expenses and repairs to primary residence. But I can't find examples of what exactly qualifies. Are you saying the IRS is not likely to care, as long as I pay the tax on the withdrawal?
Those are in relation to whether someone under the age of 59 1/2 can avoid the 10% penalty. I am going to go out on a limb here and say the Plan Administrator had no idea what they were talking about.
That is exactly right. The only interest the IRS has in an IRA withdrawal is that it is included on your tax return.
I think we have the answer.
Great. Thank you.
If you did show hardship. What would it accomplish. You don't have to pay the penalty and you do have to pay tax. What else is there?
Have a good day.