Congress Eases Restrictions on Hardship Distributions

We previously reported on certain changes made to the hardship distribution rules for qualified retirement plans by the Tax Cuts and Jobs Act.  Since then, Congress has made additional and significant changes to those same hardship distribution rules by the passage of the Bipartisan Budget Act (the “BBA”).  The BBA loosens various restrictions on a participant’s ability to request and receive a hardship distribution.  In particular, the BBA provides:

  1. Effective for plan years beginning after December 31, 2018, participants may receive hardship distributions comprised of employee elective deferrals, employer contributions and earnings on both.  Traditionally, hardship distributions were limited to employee elective deferrals and did not include qualified nonelective contributions, qualified matching contributions, safe harbor contributions or earnings on the same.
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IRS Issues Hurricane Harvey Relief

In Announcement 2017-11, the IRS relaxed standards for hardship distributions and loans from qualified retirement plans for those affected by Hurricane Harvey. This relief applies to employees or former employees and their family members who live or work in the disaster areas designated for individual assistance by the Federal Emergency Management Agency (“FEMA”).

The Announcement provides for the following relief:

  • Relaxes the administrative rules that apply to hardship distributions by permitting plan administrators to rely on a participant’s representations regarding the need for, and the amount of, the hardship distribution unless the plan administrator has actual knowledge to the contrary.
  • Permits hardship distributions for Hurricane Harvey-related needs for family members, including parents, children and spouses.
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IRS Makes Late Rollovers Easier

Generally, distributions from a qualified retirement plan that are eligible for rollover must be rolled over within 60 days of the date on which the distribution occurs.  If a taxpayer did not complete the rollover within 60 days, the taxpayer previously had to request a private letter ruling from the IRS to receive additional time to complete the rollover.  In Revenue Procedure 2016-47, the IRS makes it easier for a taxpayer to rollover a qualified retirement plan distribution if the taxpayer misses the 60-day rollover window.

Under the new guidance, instead of applying for a private letter ruling, a taxpayer may complete a self-certification and provide it to the plan administrator or IRA trustee if the rollover was not completed due to one of reasons listed in the guidance.  Read More ›

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