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Posted by Diane Caron on Wed, Dec 19, 2018 @ 12:42 PM

Real estate sale, home savings, loans market concept. Housing industry mortgage plan and residential tax saving strategy. Piggy bank isolated outside home on background. Focus on piggybank. Homeowner-1Recently, the IRS made several changes to the rules related to hardship withdrawals for not-for-profit organizations. The changes may be adopted by plan sponsors as early as Jan. 1, 2019 or, if later, the first day of the plan year beginning after Dec. 31, 2018.

Hardship withdrawals allow participants to take a distribution from their 403(b) plan while they are employed if they meet certain financial hardship conditions. The plan document must permit hardship withdrawals and specify any limitations.

The changes in the rules make it easier for an employee to access their 403(b) account in the event of a financial hardship. The changes are highlighted below:

  • The six-month suspension requirement for employee deferrals following a hardship withdrawal is removed
  • The requirement that an employee take a participant loan to the extent possible prior to taking a hardship withdrawal is removed
  • Sources available for hardship withdrawals are expanded beyond salary deferrals to include safe harbor contributions, qualified nonelective contributions (QNECs) and qualified matching contributions (QMACs), unless these amounts are held in a custodial account
  • Hardship withdrawals are allowed for expenses related to a federally declared disaster
  • Clarification that damage to a participant’s primary residence qualifies for a hardship withdrawal even if it is not due to a federally declared disaster

Employers may, but are not required to, adopt these changes. The six-month suspension of employee deferrals, however, may not be retained past Dec. 31, 2019.

Employers should consider whether or not to adopt these new rules. The rules may be implemented on the first day of your next plan year, although plan sponsors have until at least Dec. 31, 2021 to amend their plan.

Since there are several options, it is recommended that you discuss your alternatives with your plan document provider and include these new provisions in your written administrative procedures. It is important that your plan amendment accurately reflect the provisions as they have been applied, including the effective dates of the new provisions as they have been applied to your plan.

For assistance or questions related to hardship withdrawals, or any other retirement plan issues, please contact us here.

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Diane Caron

Diane Caron, QPA, QKA is a Director in the Retirement and Benefit Plan Services group. She can be reached at 617.761.0539 or dcaron@cbiz.com.

 

 

 

Copyright © 2018 CBIZ  & MHM (Mayer Hoffman McCann P.C.). All rights reserved. CBIZ and MHM are separate and independent legal entities that work together to serve clients. CBIZ is a leading provider of tax and consulting services. MHM is an independent CPA firm providing audit and other attest services. This article is protected by U.S. and international copyright laws and treaties. Use of the material contained herein without the express written consent of the firms is prohibited by law. Material contained in this alert is informational and promotional in nature and not intended to be specific financial, tax or consulting advice. Readers are advised to seek professional consultation regarding circumstances affecting their business.

Tags: not-for-profit, NFP, nonprofit, IRS, 403(b), hardship withdrawals

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