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Substantiation eased for hardship retirement distributions

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in Office Management,Payroll Management

One of the first things IRS auditors examine when auditing 401(k) or 403(b) plans is documentation backing up hardship distributions made to employees who need cash. Rule: Employees must present original documents, which you must retain. New exception: New instructions to auditors ease this substantiation burden by allowing plans to ditch retaining original documentation in favor of summaries of employees’ financial need. (TEGE-04-0217-0008; TEGE -04-0317-0010)

Can you sum that up for us? As a last resort, employees who have immediate and heavy financial needs can take hardship distributions of their pretax contributions (but not earnings on those contributions), if their plans allow such distributions.

Catch: You just can’t take employees’ word for it. They must present documentation of their dire financial straits.

The best course of action, according to the IRS, is still to retain original documents—estimates, contracts, bill...(register to read more)

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