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Effective January 1, 2019, the rules for hardship withdrawals from many types of retirement plans changed. The changes, which come as a result of revisions to the Tax Cuts and Jobs Act of 2017 and, more specifically, the Bipartisan Budget Act of 2018, generally make it easier for plan participants to withdraw funds from their 401(k) or 403(b) plans, in the event of immediate financial need.
Some of the changes to the rules for hardship withdrawals include:
- The required six-month suspension from making elective or employee contributions to any employer plan after taking a hardship withdrawal has been eliminated. The change is effective January 1, 2020 but can be applied as early as January 1, 2019.
- The requirement that the plan participant take out a loan or otherwise exhaust his/her borrowing capability before requesting a hardship withdrawal is now an optional condition. This change is effective for plan years beginning after December 31, 2018.
- The sources of money that can be included in funding hardship withdrawals have been expanded to include safe harbor contributions and investment earnings.
- Acceptance by the plan provider of self-certification of need, previously optional, is now required for distributions occurring after January 1, 2020. The plan participant may represent in written or electronic form that he or she has insufficient liquid assets or cash to meet the current financial need, and unless the plan administrator has information to the contrary, this self-certification is adequate, and the plan administrator may rely on this representation.
While these updates address some of the more noteworthy changes, numerous modifications were made, some of which effect 401(k) plans differently than 403(b) plans. Most plan sponsors and third-party service providers either have already reviewed, or are in the process of reviewing, these changes and addressing provisions applicable to their plans, making amendments as necessary.
Securities offered through Valmark Securities, Inc. Member FINRA, SIPC, 130 Springside Drive, Akron, OH 44333-2431, Tel: 1-800-765-5201. Investment Advisory Services offered through Valmark Advisers, Inc., which is a SEC Registered Investment Advisor. Fulcrum Partners LLC is a separate entity from Valmark Securities, Inc. and Valmark Advisers, Inc.
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