IRS Finalizes Hardship Distribution Regulations

IRS Finalizes Hardship Distribution Regulations

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Many employer-sponsored retirement accounts offered its plan participants under financial turmoil access to their 401(k) or 403(b) retirement funds through a process known as a hardship withdrawal. Historically, the need has been determined based on all relevant facts and circumstances. However, on September 23rd, just 10 months after releasing proposed regulations, the IRS released its final hardship distribution regulations making retirement plan assets more accessible to those experiencing financial hardship. We explore these changes and what they mean for plan sponsors and their participants.

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What is a Safe Harbor 401(k) Plan?

What is a Safe Harbor 401(k) Plan?

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There are a few types of 401(k) plans available to plan sponsors: the traditional 401(k), the Roth 401(k), the SIMPLE 401(k), and the Safe Harbor 401(k). Each plan has different benefits and drawbacks, but they all share one common feature: a requirement that the plan sponsor abides by that specific plan’s rules and regulations. Most 401(k) plans face an annual nondiscrimination test defined by the Internal Revenue Service (IRS), which ensures that the plan does not excessively favor highly compensated employees (HCEs) and that their contributions do not exceed the average contributions of non-highly compensated employees (NHCEs) by set limits. Failing to adhere to the IRS’s rules can risk the loss of the 401(k)’s preferable tax status and can be subject to penalties.

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The Basics of Retirement Plan Hardship Distributions and Recent IRS Changes

The Basics of Retirement Plan Hardship Distributions and Recent IRS Changes

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Retirement plans can offer a few options regarding early access to saved funds. Under many employer-sponsored retirement accounts, plan participants may have been offered two early distribution options. One was under a hardship qualification and the other, if allowed, was a loan against the amounts they had vested in the plan. It’s important to understand what hardship distributions and loans are and how the funds may be used.

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How To Make A 401(k) Contribution For Your Employees When You Can’t Afford An Ongoing Match

How To Make A 401(k) Contribution For Your Employees When You Can’t Afford An Ongoing Match

Posted on by Mark OlsenLeave a comment

One of the things employees get most excited about regarding retirement plans is matching contributions. While this is “free money” to the employees, it is not to the company sponsoring the plan. A lot of large companies offer matching contributions, but many small- and mid-size businesses just aren’t financially stable enough to do so.

What can you do if you want to help your employees save towards retirement, but can’t afford to promise a certain percentage every year? Make discretionary contributions.

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