The 401(k) Hardship Withdrawal Rules In 2019==>[05 MAJOR UPDATES TO TAKE SERIOUSLY]

The 401(k) Hardship Withdrawal Rules In 2019==>[05 MAJOR UPDATES TO TAKE SERIOUSLY]

05 MAJOR UPDATES TO THE 401(K) HARDSHIP WITHDRAWAL RULES IN 2019

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INTRODUCTION

Welcome to this article which will provide enlightnment on the 401(k) Hardship Withdrawal Rules In 2019.

The best approach to managing your 401(k) retirement account would have just been to avoid withdrawing money from it altogether. But how possible can this be? The truth is that staying away from this saving account, or any other one for that matter, is close to impossible to implement due to the unpredictable nature of life itself. You are going have to deal with some urgent issues, and accessing your savings shouldn’t be associated with complications. The conditions initially governing the 401(k) plan when it comes to withdrawals were very stringent in the past. What have they become today? Continue reading to check the 401(k) Hardship Withdrawal Rules In 2019, to discover and understand the 05 Major Updates that have taken place.

 

 

THE 401 (K) HARDSHIP WITHDRAWAL RULES IN 2019–>05 MAJOR UPDATES TO BE TAKEN SERIOUSLY

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Amendments

The 401(k) Hardship Withdrawal Rules in 2019 have undergone some 05 Major Updates To Take Seriously, following amendments of the Bipartisan Budget Act of 2018.

The good news is that these conditions have become more favorable than they used to be as you will soon discover.

According to section 41113 of the said Act:

…(1) delete the requirement that an employee be prohibited from making elective deferrals and employee contributions for six  months after the receipt of a hardship distribution in order for the distribution to be deemed necessary to satisfy an immediate and heavy financial need

This practically means that following the receipt of distribution within the context of a hardship withdrawal, the employee still has the right to continue to make elective contributions, without any prohibitions. The 6 months prohibition from making contributions have been completely erased.

According to SEC. 41114 which modifies the rules related to 401(k) hardship withdrawals, the following amendments have been made:

‘‘(14) SPECIAL RULES RELATING TO HARDSHIP WITH- DRAWALS.—For purposes of paragraph (2)(B)(i)(IV)—
‘‘(A) AMOUNTS WHICH MAY BE WITHDRAWN.—The following amounts may be distributed upon hardship of the employee:
‘‘(i) Contributions to a profit-sharing or stock bonus plan to which section 402(e)(3) applies.
‘‘(ii) Qualified nonelective contributions (as defined in subsection (m)(4)(C)).
‘‘(iii) Qualified matching contributions described in paragraph (3)(D)(ii)(I).
‘‘(iv) Earnings on any contributions described in clause (i), (ii), or (iii).
(B) NO REQUIREMENT TO TAKE AVAILABLE LOAN.—A
distribution shall not be treated as failing to be made upon the hardship of an employee solely because the employee does not take any available loan under the plan.’’.
(b) CONFORMING AMENDMENT.—Section 401(k)(2)(B)(i)(IV) is amended to read as follows:
‘‘(IV) subject to the provisions of paragraph
(14), upon hardship of the employee, or’’.
(c) EFFECTIVE DATE.—The amendments made by this section shall apply to plan years beginning after December 31, 2018.

The amendments are of two different types:

  • The first set of amendments (A) is redefining the amounts which are eligible to withdrawal or distribution;
  • And the second one simply takes off the requirement to first exhaust 401(k) loans before being approved to make a 401(k) hardship withdrawal.

Let’s proceed to analyze each and every amendment above, and understand better what these 2019 changes are all about.

Analysis

The major updates in question have one main ramification: they have really broadened the possibilities of withdrawing from your account unlike before.  They also give you the possibility of making contributions as soon as you feel ready to continue saving.

Let’s get right into things and check out some details below:

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1. CONTRIBUTION TO A PROFIT-SHARING OR STOCK BONUS

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As from January 1st, 2019, you can actually request to withdraw your profit-sharing or stock bonus within the context of a hardship withdrawal.

Let’s take a closer look at these two types of contributions before you get excited because it might not apply to everyone who currently has a 401(k) retirement account.

A Profit-Sharing Plan is any retirement plan that accepts discretionary employer contributions. By implication, any other plan created based on personal contributions such as the 401(k) plans is excluded.

So this particular clause is applicable only to employees working for companies whose employers have decided to share profits with their employees to give them a sense of belongingness.

Since the 401(k) plan is essentially constituted by the employee, this particular clause is irrelevant with 401(k) retirement plans.

Speaking of Stock Bonus Plans, these are employee incentive schemes implemented by the Employer, which have similar benefits to the profit-sharing plan discussed above, except that the benefits are distributed in the form of shares.

One more time this particular clause will not be relevant to 401(k) plans, but for the beneficiaries of both profit-sharing and Stock Bonus plans, I would really applaud the lawmakers for making such an amendment that will go a long way to help out with urgent financial hardships.

 

[A QUICK QUESTION. WHAT YOU DO TO DETERMINE HOW MUCH YOUR EMPLOYER HAS CONTRIBUTED TOWARDS YOUR PROFIT SHARING OR STOCK BONUS PLANS? PLEASE DROP YOUR ANSWERS HERE]

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2. QUALIFIED NON-ELECTIVE CONTRIBUTIONS

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Qualified non-elective contributions happen to be one of those contributions that can now be made available within the context of hardship withdrawals. Before we understand whether or not 401(k) plans get to benefit from this advantage, reviewing the definition of a Qualified Non-Elective Contribution (QNEC) would be helpful.

A Qualified Non-Elective Contribution (QNEC) can be defined as contributions made on behalf of the employee. The employee in question is usually a non-highly compensated (NHCE).

These contributions made by employers on behalf of the employee is a way for the employer to correct for a failed nondiscrimination test (NDT), and to catch up with the lost opportunity missed by the eligible employee to make elective deferrals.

Since this is principally the fault of the employer, for not notifying the eligible employee at the appropriate time, these contributions would be nonelective, meaning they would not be determined by how much an employee defers.

Amendments made in the Bipartisan Budget Act of 2018 now makes these funds available within the context of a hardship withdrawal.

The million-dollar question:

IS THIS APPLICABLE TO 401(K) PLANS? THE ANSWER IS AN ABSOLUTE YES!!!

How would you even know if some corrective QNEC has been opened in your favor? This is a difficult question to answer because most of the corrective work is going on behind the scenes.

Your best shot would be to discuss with your plan administrators. Equally, note that provisions make it possible for employers to decline such requests for withdrawals from your QNEC.

Having a Financial Advisor at hand is always handy.

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3. QUALIFIED MATCHING CONTRIBUTIONS

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Qualified Matching Contributions are now among the list of financial resources you can withdraw when making a hardship withdrwawal request.

What is a Qualified Matching Contribution (QMAC?)

This type of contribution has the following characteristics:

  • It is used to correct certain nondiscrimination testing issues.
  • They must be fully vested at all times,
  • They are also subject to the same distribution restrictions as salary deferrals.

In other words, safe harbor matching contributions are QMACs. So if your employer has set up these contributions for corrective measures, these amounts could be distributed to the employee within the context of a hardship withdrawal.

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4. EARNINGS ON ANY CONTRIBUTION

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It is important to note that you can use the funds directed to your 401(k) retirement plan to invest in mutual funds. The choice is totally yours to make so make sure you choose wisely. But when investing for retirement, you surely want to go in for mutual funds with great potentials of growth that will supersede inflation in the upcoming years.

Whichever investment method you choose, amendments of the Bipartisan Budget Act of 2018 now make the earnings from your respective investments available if needed very urgently.

I always recommend that you meet with a financial advisor when it starts becoming too techy to handle at your level.

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5. NO REQUIREMENT TO TAKE AVAILABLE LOAN

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In the past, it was required that you exhaust other sources of financing before actually applying for a hardship withdrawal on your 401(k) plans. One of them was taking a loan on that same 401(k) account.

Now the Act has been amended to bypass this condition and apply directly for your hardship withdrawal without any need to prove that you have already taken advantage of such a loan.

Another condition, whose complete elimination I’m looking forward to, is the disposal of strategic assets before actually applying for a hardship withdrawal. Those long term assets are investments I personally would not be willing to give away, especially when I know that some withdrawal from my 401(k) retirement savings account can help solve the current hardship.

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REMINDER OF WHAT HAPPENS WHEN YOU MAKE HARDSHIP WITHDRAWALS BEFORE REACHING 59-1/2

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Penalties, penalities and penalties.

While the conditions governing hardship withdrawals have been significantly relaxed, to enable easy access to finances when needed, don’t forget that the consequences still remain unchanged: penalty of 10% plus income taxes on the amounts withdrawn.

Even though 401(k) plans is one of the most popular out there, I personally do not recommend it because it turns out to be more expensive, especially when it comes to withdrawals.

But if you have such a plan, that’s still awesome. Just make sure to diversify as much as possible and do not rely only on your 401(k) retirement plan.

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ADDITIONAL FACTS ABOUT 9-5 JOBS YOU MIGHT BE INTERESTED IN

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I’ve published a couple of work-related articles you might be interested in:

CONCLUSION ABOUT THE 401(K) HARDSHIP WITHDRAWAL RULES IN 2019

The 401(k) Hardship Withdrawal Rules In 2019==>[05 MAJOR UPDATES TO TAKE SERIOUSLY]

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These rules have been slightly loosened in 2019, but the fact is that they are far better than what they used to be, even though much still needs to be done.

The three main amendments include:

  • broadening the respective amounts which are eligible for hardship withdrawals,
  • the elimination of the requirement to first take a 401(k) loan before requesting a hardship withdrawal, as well as
  • the elimination of the prohibition to make contributions within the first six months following receipt of the hardship withdrawals.

In the meantime, if you could avoid withdrawing from this account, the better for you. Make sure to diversify your income and avoid putting all your eggs in one basket.

One of the methods of diversifying is starting an online business through affiliate marketing. If you need help with that, then click the button below:


I hope you found my article informative. Don’t hesitate to leave a comment below if you need more clarifications about The 401(k) Hardship Withdrawal Rules

✌✌Thanks for reading.✌✌


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