Bipartisan Budget Act Changes Hardship Withdrawal Rules

Retirement Plan Sponsors Prepare To Make Changes To Their Plan Documents

Budget Act of 2018 Eases Hardship Withdrawal Rules | Ohio CPA Firm
Pulling money from your 401(k) to help recover from some level of hardship has always been difficult, but as of Jan. 1, 2019, the rules will be a bit more relaxed. Read on to learn more.

Regular review and maintenance of your clients’ retirement plan documents is always essential, and this year is no exception. With the adoption of the Bipartisan Budget Act of 2018, and its impact on hardship withdrawals, plan sponsors (and their advisors) should prepare to buckle down and prepare to make a few adjustments to their documents in preparation of the new year.

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Budget Bill Eases Hardship Withdrawal Rules

Effective Jan. 1, 2019, the money sources from which a hardship withdrawal may be obtained will be expanded. Meaning that, unlike in the past, hardship withdrawals may be made from qualified non-elective contributions and qualified matching contributions as well as the earnings associated with those specific sources. The permissible sources for hardship withdrawals were also expanded to include earnings on elective deferral contributions.

In addition to providing participants with easier access to funds when making a hardship withdrawal, the Treasury Department also opted to eliminate the regulatory requirement that suspends a participant’s ability to make elective deferral contributions for at least a six-month period after having received a hardship withdrawal. This particular provision allows participants to continue saving for retirement even after obtaining a hardship withdrawal.

And the changes didn’t stop there …

The Budget Act also loosened the overall parameters for obtaining a hardship withdrawal. Current regulations state that such a withdrawal will only be granted if:

  • There is immediate and heavy financial need.
  • The participant has first sought funding from other available sources (i.e. loans).

This is no longer the case. Beginning in January 2019, to take a hardship withdrawal, a participant must still demonstrate immediate and heavy financial need, but they no longer have to seek out funding from other sources.

Don’t Change That Plan Document Yet

Maintaining the integrity of the plan document is the number one priority. Therefore, work with your plan sponsor clients to ensure that hardship withdrawal provisions are updated effective January 1, 2019.

If you have questions about these changes or need assistance as you implement these rule changes, email the retirement plan administration services team at Rea & Associates.

By Paul McEwan, CPA, MTax, AIFA (New Philadelphia office)

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