Recent regulatory changes as a result of the Tax Cuts and Jobs Act of 2017 (“Tax Cuts Act”) and the Bipartisan Budget Act of 2018 (“Budget Act”) may impact certain provisions of your 401(k) Plan. Many of these changes will become effective the first day of the plan year that begins in 2019. The most significant changes are designed to ease the complexity of hardship withdrawals from 401(k) plans:
- Suspension of Ability to Make Salary Deferrals during 2019. You may eliminate the 6-month suspension requirement for any hardship distribution taken during the 2019 Plan Year. Effective January 1, 2020, this provision will be mandatory.
- Application of Suspension Requirements for Pre-2019 Plan Year Hardship Distributions. If you have a participant who has received a hardship distribution prior to the beginning of the 2019 Plan Year, you may eliminate the deferral suspension effective January 1, 2019.
- Earnings on Source Accounts. If you elect to, earnings on pre-tax salary deferrals and Roth deferrals may now be included in amounts available for a hardship withdrawal.
- Need to Obtain All Available Loans. You may elect to no longer require a participant to take a non-taxable loan from the Plan prior to requesting a hardship withdrawal. This provision is only applicable if your Plan allows for loans.
- Sources for Hardship Distributions. If you elect, hardship distributions can now be allowed from Safe Harbor Employer contributions (i.e. match or nonelective), Qualified Nonelective Contributions (QNEC) and/or Qualified Matching Contributions (QMAC). This provision is only applicable if your Plan includes these money sources.
If your Plan allows for hardship withdrawals, it should be amended accordingly for the above changes by your document service provider. Please contact your Watkins Ross administrator with specific questions about your Plan.