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Retaining the Proper Documents for Hardship Distributions?

Hardship distribution

Does your 401(k) plan offer hardship distributions to participants? Are you aware of your responsibility to retain specific documents related to each hardship distribution requested by participants? The IRS has established guidelines for plan administrators to understand the documents needed to not only review prior to the approval of hardship withdrawals, but to also retain them. The documents and guidelines, as noted on the IRS website, are as follows:

  • Documentation of the hardship request, including the review and approval by plan management.

  • Financial information and documentation that substantiates the participant’s immediate and heavy financial need.

  • Documentation to support that the hardship distribution was properly executed according to the plan document and the Internal Revenue Code.

  • Proof of the actual distribution made and the related Form 1099-R.

Failure to have these above listed records available at the time of an examination by the IRS or DOL is a qualification failure that should be corrected using the Employee Plans Compliance Resolution System (EPCRS). Therefore, for you and your company’s sake, PLEASE follow the above guidelines to insure the plan is compliant with hardship guidelines. For more information, check out the IRS website.

Pooler CPA Group, LLC

Known for their fixed 401(k) audit fees

Professional, friendly service from the founder

And the companions, known as the 401k.9s

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