An unforeseeable emergency is a serious financial difficulty that results from an illness or accident, the loss of property due to a fortuitous event, or other similar extraordinary and unforeseeable circumstances that arise as a result of events beyond the control of the participant or beneficiary. Under these rules, distribution is made taking into account the employee's difficulties only if the distribution is made due to an immediate and heavy financial need of the employee and is necessary to meet the financial need. During a review of its plan operations, ABC determined that these hardship distributions were available to all participants and that they met IRS rules on hardship distributions. A plan may, although not required to do so, apply the same conditions to hardship distributions of periodic and non-elective employer matching contributions as to hardship distributions from elective deferrals.
The distribution due to economic difficulties must be limited to the amount necessary to meet an immediate and serious financial need. This may be a legitimate option if you can't pay your tax obligations in full or if doing so causes financial difficulties. XYZ Public School, with 7,500 participants, provides for hardship distributions in its 403 (b) plan; however, 403 (b) plan providers determine that a distribution meets economic hardship requirements and keep all records. For a distribution of a 401 (k) plan to be due to economic difficulties, it must be done because of an immediate and significant financial need of the employee and the amount must be necessary to meet the financial need.
Some retirement plans, such as 401 (k) and 403 (b) plans, may allow participants to withdraw funds from their retirement accounts due to financial difficulties, but these withdrawals must follow IRS guidelines. If those documents did not contain that text or did not conform to the rules on economic hardship, affected participants may have to request reimbursement of distributions due to economic difficulties if they continue to work for the plan sponsor. For each hardship distribution, determine if you met the hardship distribution requirements set out in your 403 (b) plan. Under the rules, an economic hardship distribution can only be made if the distribution is due to an employee's immediate and serious financial need and is limited to the amount needed to meet that financial need.