Modification of Rules Governing Hardship Distribution

By: Niki Stehlik, CPA

With all the updates to the tax law, you may not realize that there are a few miscellaneous provisions that could affect your employee benefit plan.  These new provisions modify the rules governing hardship distributions from cash or deferred arrangements.

Under the current law, employees who receive a hardship withdrawal are prohibited from making elective deferrals and employee contributions to the plan for at least six months after receipt.  Under the new provisions, the employee would be allowed to continue to make elective deferrals and employee contributions.

Another provision change will allow hardship distributions from the plan to include account earnings and vested employer contributions. Currently the law only allows hardship distribution of amounts actually contributed by the employee.

These new provisions apply to plan years beginning after December 31, 2018. Please refer to your plan document to see if hardship distribution changes will apply as not all plans allow for these types of distributions.  If you have any questions regarding employee benefit plans or hardship distribution changes, contact your accountant at (402)423-4343.

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