Changes in Hardship Withdrawal Rules
What is a hardship withdrawal?
A hardship withdrawal is a plan provision that allows you to make a withdrawal from your employer sponsored retirement plan due to financial hardship if certain conditions are met (as outlined in the plan document). Keep in mind, you'll have to pay income taxes on the withdrawal and possibly a 10% federal penalty for early withdrawal.
Previous restrictions
- Some plans prohibited participants from contributing to their employer sponsored retirement plan for 12 months after making a hardship withdrawal.
- The elective deferral portion of a hardship withdrawal was not eligible for rollover.
Revised restrictions now in effect
- Those plans that had a 12-month suspension period following a hardship withdrawal may now have a reduced suspension period of 6 months.
- No portion of a hardship withdrawal is eligible for rollover.
What do the changes mean for you?
With a reduced suspension period, if you need to make a hardship withdrawal from your employer sponsored retirement plan account balance, you may begin building that balance up sooner. And, you may begin taking advantage of any employer matching contributions earlier as well.
