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Ask Chad CFP ® Your Own Question
Chad CFP ®
Category: Tax
Satisfied Customers: 466
Experience:  Managing Director at Caros Group
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I will be off as my company is losing its contract. I want

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I will be laid off as my company is losing its contract. I want to cash in my 401K for expenses. I am 100% service connected disability from the VS and I am also repaying significant student loan debt. I understand both of these fall under distribution codes 2 & 3, but I am not sure who puts the code in block 7 of the 1099r and what documents are required to prove my previously mentioned status.

Hello, My name is***** am a Certified Financial Planning ® Professional. Welcome to JustAnswer!

The plan sponsor of your 401K is responsible for completing and issuing the 1099R. Each plan sponsor may have different requirements to prove your hardship.

Give me one moment and I will detail the IRS approved hardship withdrawal purposes.

A retirement plan may, but is not required to, provide for hardship distributions. Many plans that provide for elective deferrals provide for hardship distributions.

If a 401(k) plan provides for hardship distributions, it must provide the specific criteria used to make the determination of hardship.

Whether a need is immediate and heavy depends on the facts and circumstances. Certain expenses are deemed to be immediate and heavy, including:

(1) certain medical expenses;

(2) costs relating to the purchase of a principal residence;

(3) tuition and related educational fees and expenses;

(4) payments necessary to prevent eviction from, or foreclosure on, a principal residence;

(5) burial or funeral expenses;

(6) certain expenses for the repair of damage to the employee's principal residence.

Each 401K plan provider may have different requirements of paperwork which they need completed before they label your withdraw as a hardship, so be certain to speak with your 401K plan provider.

In Summary, the 401K plan provider completes block 7 of the 1099R

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Customer: replied 3 months ago.
I have spoken with the company who will be disbursing the funds and they disagree. I even have a MD drafting a letter stating that 100% military disability makes it impossible for me to work and the company has no idea what to do with it. Please advise. Also, thought I had to approve payment, was surprised to see that I had already been charged.

To qualify for a hardship withdraw the medical need should be a current expense to qualify . If you have outstanding medical bills, that would generally qualify.

Your previous employer does have discretion when making the determination for a hardship withdraw. However, if you feel you are entitled to a hardship withdraw then you should complete your 2017 return accordingly. Understandably, a year from now does not help your situation.

Here is the IRS definition of hardship for a 401(k) plan?

"it must be made on account of an immediate and heavy financial need of the employee and the amount must be necessary to satisfy the financial need. The need of the employee includes the need of the employee's spouse or dependent. "

I am only compensated if you accept the answer. If justanswer charged you, they most certainly didn't compensate me.

However, I will help you anyway I can. It is disappointing that the company didn't approve your hardship given your condition. If you have current medical bills, then I think you have a good argument, but the final decision is at the discretion of your employer, unfortunately.

Customer: replied 3 months ago.
My company is losing its contract and I am being permanently laid off. I am withdrawing the funds because my disabilities make it impossible to seek future employment. I have a Dr stating I am incapable of working. I have no medical bills because the VA is taking care of the expenses. I was planning on using the funds to live on. You should seek payment as I can state absolutely that a $33 & $5 charges were paid

I understand your position and if I were your previous employer retirment account plan sponsor I would grant you a hardship withdraw based on a financial hardship.

Instead of asking the plan administrator for a hardship withdraw based on your medical situation, try explaining your financial hardship.

Below is a portion from the IRC 401k general distribution rule guide.

Immediate and heavy financial need. Whether an employee has an immediate and heavy financial need is to be determined based on all relevant facts and circumstances.

I would review the information found in the link above. However, the final decision is up to the plan sponsor.

I would write a letter to the plan administrator of the 401K outlining why you should receive the withdraw due to a financial hardship and medical hardship.

Send the letter so that you can track the letter, generally USPS certified mail. If you rate the service then they will credit me. If your not happy with the information you can request a refund. I understand given your position, I would be extremely frustrated. I am happy to help anyway I can.

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