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‘‘(A) AMOUNTS WHICH MAY BE WITHDRAWN.—The following amounts may be distributed upon hardship of the employee: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.
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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