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 financial services firm affiliated with Berkowitz Pollack Brant Advisors and Accountants. For more information, call (954) 712-8888 or email


Provenance Wealth Advisors, 515 E. Las Olas Blvd., Ft. Lauderdale, FL 33301 (954) 712-8888.


Sean Deviney is a registered representative of and offers securities through Raymond James Financial Services, Inc., Member FINRA/SIPC. Raymond James is not affiliated with and does not endorse the opinions or services of Berkowitz Pollack Brant Advisors and Accountants. PWA is not a registered broker/dealer and is independent of Raymond James Financial Services. Investment Advisory Services offered through Raymond James Financial Services Advisors, Inc., and Provenance Wealth Advisors.


This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of PWA and not necessarily those of Raymond James. You should discuss any tax or legal matters with the appropriate professional. The information contained in this report has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete.


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 59 1/2, 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.