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Hardship Withdrawals

Q. We have a client who is being sued by her ex-husband for child support and wants to claim financial hardship for legal fees. She wants to claim heavy financial need; however, we find nothing in the Treasury regs to support this. Would this qualify for hardship withdrawal?

A. Most plans follow the safe harbor rules for hardship withdrawals (check the plan document to see what it says), which means that only certain events can be considered for hardship withdrawals. Those events are:

  • Medical expenses incurred by the participant, the participant’s spouse, or dependents that would be deductible under Code Section 213(d);  
  • Purchase of the participant’s principal residence;
  • Payment of the next 12 months of post-secondary tuition and related educational fees for the participant, the participant’s spouse, or dependents;
  • Payments necessary to prevent the eviction from the participant’s principal residence or foreclosure of a mortgage on the principal residence;
  • Payments for burial or funeral expenses for the employee’s deceased parent, spouse, children, or dependents; or
  • Expenses for the repair of damage to the employee’s principal residence that would qualify for the casualty deduction under Code Section 165.

The withdrawal is permitted only to the extent there are no other readily available resources to meet the hardship, and only in the amount that would satisfy the need (plus the taxes due on the hardship withdrawal).

01/12/2015

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