What are the safe harbor reasons for a hardship withdrawal? Rev. 01/08/04, E-mail Alert 2004-1, Updated 10/11/07

There are four events that meet the safe harbor definition of a hardship. Treas. Reg. 1.401(k)-1(d)(2)(iv)(A). They are the only events that may be used by prototype plans. Individually designed plans are not limited to the four safe-harbor hardship rules. An immediate and heavy financial need exists when the hardship withdrawal will be used to pay for any of the following four safe-harbor events:

1. expenses incurred or necessary for medical care [described in Code Section 213(d)] of the Participant, his or her Spouse, children and other dependents;
2. the cost directly related to the purchase (excluding mortgage payments) of the principal residence of the Participant;
3. payment of tuition and related educational expenses (including but not limited to expenses associated with room and board) for the next twelve (12) months, of post-secondary education for the participant, his or her spouse, children or other dependents; or
4. the need to prevent eviction of the participant from, or a foreclosure on the mortgage of, the participant's principal residence.

NOTE: The final 401(k) and 401(m) regulations of December 29, 2004 added two more safe harbor hardship reasons effective in 2006. These two additional reasons are:

5. Funeral expenses of a parent, spouse, child or dependent.
6. Certain expenses related to the repair of damage to the participant's principal residence that would qualify for a casualty deduction on the individual's federal income tax return. For example, this would include expenses incurred to repair property damage that resulted from a natural disaster, flood damage or other loss. (The amount that may be included in the hardship withdrawal would determined without regard to whether the loss exceeds 10% of adjusted gross income.)