News and Commentary

UPDATED What 401(k) Plan Sponsors Need to Know about Relaxed Rules to Hardship Withdrawals by Sean Deviney, CFP

The IRS recently issued guidance on the new rules for financial hardship withdrawals from employer sponsored retirement plans instituted by the Bipartisan Budget Act of 2018. The new rules are intended to provide participants in 401(k) and 403(b) retirement plans with easier access to hardship withdrawals from these savings accounts. As a result, it is critical that employers sponsoring defined contribution (DC) plans that permit hardship distributions review and update their policies and procedures and understand how these changes will impact their administration of these plans.

Following are some of the key provisions included in the updated regulations.

Repeal of Six-Month Contribution Suspension Requirement

Beginning on Jan.1, 2020, DC plans are prohibited from restricting when recipients of hardship withdrawals may choose to resume making plan contributions through salary deferrals. Plan sponsors have the option to eliminate the six-month suspension as early as January 1, 2019.

The elimination of the six-month suspension of contributions allows participants to begin rebuilding their savings after receiving a hardship distribution while providing the plan sponsor the ability to reduce the risk of plan leakage.

Repeal of Requirement that Participants Take a Loan before A Hardship Withdrawal

Effective Jan. 1, 2019, plans are no longer required to compel participants to first take a plan loan before a hardship withdrawal. Rather, plans have the option to remove the loan requirement.

While this may be perceived as something that could increase plan leakage, sponsors should note that participants will still be bound by an obligation to take all other distributions from qualified and nonqualified plans before requesting a hardship withdrawal. Moreover, eliminating the loan requirement may simplify plan administration and make it easier for sponsors to track outstanding loans and withdrawals.

Easier Rules for Demonstrating Immediate and Heavy Financial Need 

Participants who request a hardship distribution must simply provide their plan administrators with a written statement that they do not have enough cash or liquid assets to satisfy an “immediate and heavy financial need.”

Effective Jan. 1, 2020, plan administrators no longer need to wade through a sea of “relevant facts and circumstances” to determine whether a hardship withdrawal is “necessary” nor do they need to have in-depth knowledge of a participants personal financial information before granting a hardship distribution. However, employers must continue to keep appropriate records documenting hardship withdrawal requests, reviews and approvals.

Expansion of Who and What Qualifies as a Financial Need 

Under the new tax law, participants may request and receive hardship distributions from their DC plans for the benefit of a spouse, child or other primary beneficiaries they named on their accounts. In addition, the regulations expand the “heavy and immediate need” to cover expenses and losses participants and their primary beneficiaries incur due to a federally declared disaster, including repairs to a principal residence located in the disaster area.

Expansion of Withdrawal Sources 

Beginning in 2019, plan sponsors have the option to distribute as hardship withdrawals earnings on 401(k) and profit sharing contributions as well as qualified non-elective contributions (QNEC) and qualified matching contributions (QMAC) and the earnings on those contributions. This benefit does not apply to 403(n) plan participants.

Despite this expansion of sources available for hardship withdrawals, employers have the flexibility to decide what type of contributions they make available for hardships while weighing their responsibilities to preserve retirement benefits for all plan participants.

Next Steps

To comply with the new regulations, employers will need to amend their plan documents and communicate these changes to participants by Jan. 1, 2020, which gives them ample time to consider their options and implement an appropriate plan of adoption.

About the Author: Sean Deviney is a CFP®* professional, a retirement plan advisor and a director with Provenance Wealth Advisors (PWA), an Independent Registered Investment Advisor affiliated with Berkowitz Pollack Brant Advisors + CPAs and a registered representative with PWA Securities, LLC. He can be reached at the firm’s Fort Lauderdale, Fla., office at (954) 712-8888 or

Provenance Wealth Advisors (PWA), 200 E. Las Olas Blvd., 19th Floor, Ft. Lauderdale, FL 33301 (954) 712-8888.

Sean Deviney, CFP®*, is a registered representative of and offers securities through PWA Securities, LLC, Member FINRA/SIPC.

 This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.

 Any opinions are those of the advisors of PWA and not necessarily those of PWA Securities, LLC. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of PWAS, we are not qualified to render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional. Prior to making any investment decision, please consult with your financial advisor about your individual situation.

 401(k) plans are long-term retirement savings vehicles. Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59½, and may be subject to a 10% federal tax penalty. Investments mentioned may not be suitable for all investors. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.

 * Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and federally registered CFP (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

To learn more about Provenance Wealth Advisors financial planning services click here or contact us at

Updated on January 26, 2024