Insights

Changing Rules for Hardship Withdrawals

A Reminder about the Changing Rules for Hardship Withdrawals

The opportunities to take in-service distributions from retirement plans are limited prior to age 59½. An exception is hardship withdrawals.

The requirements for hardship withdrawals are changing as follows:

  • No Plan Loan – To qualify for the safe harbor for hardships, plans no longer have to require that participants take the maximum loan available before requesting a hardship withdrawal.
  • No Suspension of Deferrals – Also, to qualify for the safe harbor, plans no longer have to suspend employees from making deferrals for six months after receipt of a hardship withdrawal.
  • Withdrawal of Earnings – Earnings on elective deferral contributions may now be included as part of a hardship withdrawal. This does not apply to earnings on elective deferral contributions in 403(b) plans.
  • Withdrawal of Qualified Non-elective Contributions (QNECs), Qualified Matching Contributions (QMACs), and Safe Harbor Plan Contributions – QNECs, QMACs, and safe harbor plan contributions may now be available for a hardship withdrawal along with earnings. This includes post 1988 earnings on deferrals

It should be noted that plan sponsors have always been free to define the circumstances under which employees qualify for hardship withdrawals. The requirements to take a loan and suspend contributions are part of the safe harbor which most employers have chosen to adopt. Where the safe harbor is adopted, the IRS will not challenge hardship withdrawals. Some employers have elected to follow the safe harbor with the exception of the suspension of contributions.

Adopting these changes in the hardship rules will require a plan amendment. Those sponsors using a service provider’s prototype or volume submitter document are best advised to wait for the provider to update its procedures and prepare the necessary amendment.

At this point, it is unclear whether employers may continue to impose the requirements to take a loan and suspend contributions and still qualify for the safe harbor. We hope further guidance from the Department of Treasury will answer this question.

These changes are effective for plan years beginning on or after January 1, 2019.

BGWA.2019.5

Back to Insights

Burnham Gibson Wealth Advisors, Inc., is an independent, privately-held firm offering financial planning and investment advice for individuals, and retirement plan services to corporations.

Check the background of your financial professional on - FINRA BrokerCheck.


  Connect with us on LinkedIn


Investment advisory and asset management services are offered by investment adviser representatives (IARs) through Burnham Gibson Wealth Advisors, Inc. (Burnham Gibson), a registered investment adviser. Burnham Gibson IARs are also, separately and apart from Burnham Gibson, registered representatives who offer securities through AXA Advisors, LLC (NY, NY 212-314-4600), member FINRA, SIPC, as well as agents who offer insurance and annuity products through AXA Network, LLC, which conducts business as AXA Network Insurance Agency of California, LLC in California, and as AXA Network Insurance Agency of Utah, LLC in Utah. Please note that any Burnham Gibson IAR holding the QKA (Qualified 401(k) Plan Administrator) and/or the CPFA (Certified Plan Fiduciary Advisor) professional designation does so only in his or her capacity as an investment advisory representative with Burnham Gibson and entirely outside of AXA Advisors and AXA Network. Neither designation reflects any AXA Advisors/AXA Network investment advisory or other service or product offering. AXA Advisors and AXA Network do not provide ERISA fiduciary, tax or legal advice and are not affiliates of Burnham Gibson. Individuals may transact business and/or respond to inquiries only in state(s) in which they are properly qualified.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP® and CERTIFIED FINANCIAL PLANNER™ in the U.S., which it awards to individuals who successfully complete the CFP Board’s initial and ongoing certification requirements. The CLU®, ChFC®, Chartered Life Underwriter® and Chartered Financial Consultant® marks are the property of The American College, which reserves sole rights to its use, and is used by permission.

Please note that although Burnham Gibson Wealth Advisors, Inc. is  a “registered investment adviser”, readers should be aware that registration with the SEC or any state securities authority does not imply a certain level of skill or training. Additional information about the Adviser is available on the SEC’s website at www.adviserinfo.sec.gov.

BGWA.2018.51
PPG 138586 (8/18) (Exp 8/20)