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Wendy Reed
Wendy Reed, Enrolled Agent
Category: Tax
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Experience:  15+ years tax preparation and tax advice.
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I am requesting a 401K hardship withdrawel for the "costs

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I am requesting a 401K hardship withdrawel for the "costs relating to the purchase of a primary residence". I have already provided 401K reps with the purchasing agreement (that has my and my fiance's name on it) and a letter from the lender, on their letter head, showing my name, the property address, funds needed at closing and signature of the lender. I will not be on the loan, my fiance will be on the loan. We will both be on the property title with rights of suvivorship. I will be using he hardship disbursement to pay closing and downpayment costs - which will be via a gift to my fiance. My 401K people are now saying that they are denying my request because "IRS regulations clearly states that I have to be on the loan". I've not seen this anywhere - can you tell me if this is, indeed, a requirement of IRS? Thanks -
Submitted: 2 years ago.
Category: Tax
Expert:  Wendy Reed replied 2 years ago.

Thank you for giving me the opportunity to assist you. I will give the best answer that I can with the information provided.

 

 

 

Hello there,

I would like to ask your 401k people what would happen if there was no loan and you purchased the property outright?

 

The treasury regulation that covers this (which the IRS quotes when discussing hardship withdrawal rules) is

 

(Reg. §1.401(k)-1(d)(3)(iii))

 

the link to this: http://edocket.access.gpo.gov/cfr_2010/aprqtr/pdf/26cfr1.401(k)-1.pdf

You will find it on page 10 (page 312 on the pdf)

 

You will see that the wording states: "Costs directly related to the purchase of a principal residence for the employee (excluding mortgage payments)"

 

and states nothing about "being on a loan"

 

Here is the same wording from the IRS website:

http://www.irs.gov/retirement/participant/article/0,,id=151787,00.html

 

To my knowledge and through my research, I cannot find anywhere that the IRS regulations clearly state this.

 

Please let me know if I can assist you further.

Customer: replied 2 years ago.
Thanks so much Wendy!

My situation is this - the home is not being purchased outright - my fiance qualified for the loan on his own and my contribution will be for closings costs and downpayment. Though I am not on the loan, I provided my 401K people 1) the purhase agreement that has both my and my fiance's name on it 2) a letter, from the lender, on their letterhead that includes my and Malcolm's (fiance) names, the estimated closing costs, the property address and was signed and dated by the lender. I also provided them a letter from our broker, again, with both of our names and assurance that both Malcolm and I will be on title to the property and we will foward the title to them at closing. In addition to this - I provided another document from the Lender stating that I will be "gifting" the funds to Malcolm via my 401K disbursment for our home. All of this, and hte 401 people are insisting that per, IRS regulastions, I have to provide the loan with my name on it - or I'm denied. Is there any documentation I can get from IRS that states I do not have to be on the loan, as long as I've proven that these funds are going towards the costs directly related to the purcahse of my primary residence? I'm so frustrated right now - any guidance you can give me would be greatly GREATLY appreciated......
Expert:  Wendy Reed replied 2 years ago.

I see,

I am sorry for your frustration. If you were not going to be on the title of the property, then I could see them denying your request, but not for this. I know that you are not buying the home outright, but what I meant by that was, if you were, then there wouldn't be a loan for you to be on or off, so would they still say no?

 

What you are looking for (and many persons do when they want to be absolutely sure of something) is a law that is written the way you want it written to affirm your position. Unfortunately it doesn't exist that way. You are left with a law (regulation) that says what it does but not specifically what you need it to say to prove that you are correct. What the 401 company is doing is hiding behind the IRS and making them the bad guy. Many companies do this for various reasons. (Currently, I am fighting with my mortgage company who is telling me that they are following Freddie Mac regulations but they are not, they are making up their own rules and blaming the outcome on another entity---so I continue to fight)

 

I recommend a certified letter stating your postition and quoting the Treasury regulation that I gave you. Challenge them to show you where in the IRS regulations it states that you have to be on a mortgage loan for 401k hardship distribution rules to apply. You may also wish to report them to BBB, or whatever regulatory body applies (whether they are a bank, investment company, etc.)

 

I'm sorry I don't have a better answer for you, but I would pursue this as hard as you can---because you are simply right!!

Wendy Reed, Enrolled Agent
Category: Tax
Satisfied Customers: 3345
Experience: 15+ years tax preparation and tax advice.
Wendy Reed and 4 other Tax Specialists are ready to help you
Customer: replied 2 years ago.

Thanks so much Wendy! What creeps these people are (yours and mine). I wish you much success with your mortgage company).

I will send a certified letter as you suggest. I appreciate your advise tremendously.

Have a great weekend!

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