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What to Collect When Processing a Hardship Distribution

March 29, 2017 by Michele Suriano

The following is a list of specific documents that the employer must collect based on each type of hardship. The employee must keep these documents available for the employer at all times.

To read a general overview of the employer’s responsibilities during a request for a hardship distribution, click here.

I. Notifications that the Employer/Administrator Must Provide to the Employee

  • The hardship distribution is taxable and additional taxes could apply.
  • The amount of the distribution cannot exceed the immediate and heavy financial need.
  • Hardship distributions cannot be made from earnings on elective contributions or from QNEC or QMAC accounts, if applicable.
  • The recipient agrees to preserve source documents and to make them available at anytime, upon request, to the employer or administrator.

II. General Information for All Hardship Requests

  • Participant’s name
  • Total cost of the event causing hardship (for example, total cost of medical care, total cost of funeral/burial expenses, payment needed to avoid foreclosure or eviction)
  • Amount of distribution requested
  • Certification by the participant that the information provided is true and accurate

III. Specific Information on Deemed Hardships

A. Medical Care

  •  Who incurred the medical expenses (name)?
  • What is the relationship to the participant (self, spouse, dependent, or primary beneficiary under the plan)?
  • What was the purpose of the medical care (not the actual condition but the general category of expense, for example, diagnosis, treatment, prevention, associated transportation, long-term care)?
  • Name and address of the service provider (hospital, doctor/dentist/chiropractor/other, pharmacy)
  • Amount of medical expenses not covered by insurance

B. Purchase of Principal Residence

  • Will this be the participant’s principal residence?
  • Address of the residence
  • Purchase price of the principal residence
  • Types of costs and expenses covered (down-payment, closing costs and/or title fees)
  • Name and address of the lender
  • Date of the purchase/sale agreement
  • Expected date of closing

C. Educational Payments 

  • Who are the educational payments for (name)?
  • What is the relationship to the participant (self, spouse, child, dependent, or primary beneficiary under the plan)?
  • Name and address of the educational institution
  • Categories of educational payments involved (post-high school tuition, related fees, room and board)
  • Period covered by the educational payments (beginning/end dates of up to 12 months)

D. Foreclosure/Eviction from Your Principal Residence

  • Is this the participant’s principal residence?
  • Address of the residence
  • Type of event (foreclosure or eviction)
  • Name and address of the party that issued the foreclosure or eviction notice
  • Date of the notice of foreclosure or eviction
  • Due date of the payment to avoid foreclosure or eviction

E. Funeral and Burial Expenses

  • Name of the deceased
  • Relationship to the participant (parent, spouse, child, dependent, or primary beneficiary under the plan)
  • Date of death
  • Name and address of the service provider (cemetery, funeral home, etc.)

F. Repairs for Damage to Principal Residence 

  • Is this the participant’s principal residence?
  • Address of the residence that sustained damage
  • Briefly describe the cause of the casualty loss (fire, flooding, type of weather-related damage, etc.), including the date of the casualty loss
  • Briefly describe the repairs, including the date(s) of repair (in process or completed)

Filed Under: Advice, Blog

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Castle Rock Investment Company, formed in 2006, is an independent woman-owned SEC-registered investment adviser located in Castle Rock, Colorado. We specialize in individual financial plans and qualified service plans.

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