2019 Hardship Distribution Changes

Due to the Bipartisan Budget Act, changes to the hardship withdrawal rules for 401(k) and 403(b) plans will become available for plan years beginning on or after January 1, 2019. The three main changes are summarized below.

A plan is no longer required to suspend a participant’s deferrals for six months following the hardship withdrawal. Previous regulations required employees who took a hardship distribution to stop making contributions to their retirement plan for the next six months. A plan can choose to continue to suspend deferrals for hardships taken in 2018 or 2019, but in 2020, a suspension period can no longer be applied.

Participants are no longer required to take loans prior to taking a hardship distribution. The previous requirement that participants take all available loans under the plan before they are allowed a hardship distribution has been overturned by the new regulation.

Participants have expanded options for hardship distribution fund sources. Previously, certain plan assets were not available to be withdrawn for a hardship. The new regulation will allow participants to take a hardship withdrawal from qualified nonelective contributions (QNECs) and qualified matching contributions (QMACs), including safe harbor contributions, as well as earnings on elective deferrals in a 401(k) plan (earnings on deferrals are not available in a 403(b) plan at this time).

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