401(k), 401k, hardship distribution, bipartisan budget act, Maria Arriola, Santa Ana, Partner
Do you know how the Bipartisan Budget Act affects your 401(k) plan? Contact Maria Arriola, (714) 569-1000
Need to take a hardship distribution?

In the Bipartisan Budget Act (“Act”) passed in February 2018, Congress softened provisions on hardship distributions from 401(k) plans.

Effective for plan years beginning after December 31, 2018, if a participant takes a hardship distribution from a 401(k), the participant will be able to continue to make elective deferrals or other contributions to the plan immediately after the hardship distribution.

The Act also permits hardship distributions to be sourced from not only elective deferrals, but also qualified nonelective contributions (QNECs) and qualified matching contributions (QMACs), as well as earnings on any of these contributions.

The Tax Cuts and Jobs Act (“TCJA”) made a negative, and perhaps unintended, change to hardship distributions.  The safe harbor standards for hardship distributions under the 401k(k) regulations allow a hardship distribution for repairing damage to a principal residence that would quality for a personal casualty deduction.  Unfortunately, the TCJA limits the deductibility of a personal casualty loss effective for plan years beginning after December 31, 2018 to only losses attributable to a federally declared disaster.  That means that an isolated casualty loss, such as from a home fire, will not qualify for a hardship distributions under the safe harbor rules.

Feel free to contact Santa Ana Partner, Maria Arriola, for more information regarding 401K Plan Audits at (714) 569-1000.

Author

  • Maria Arriola

    Maria Arriola is a Partner at LSL CPAs with over 30 years of experience delivering assurance and tax services to privately held businesses, nonprofits, and employee benefit plans. Her deep industry knowledge spans real estate, healthcare, and manufacturing and distribution, where she helps clients navigate complex financial reporting, optimize tax strategies, and plan for long-term growth. Read her bio.

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