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2019 Hardship Withdrawal Rules – What You Need to Know

2019 Hardship Withdrawal Rules
3 Minute Read

If you’ve ever needed to access your money from a 401(k) before retirement, you know how much of a pain it is. Not only is it hard to get your money from the plan, you also face taxes and penalties if and when you do get the money needed. The 2019 Hardship Withdrawal Rules make it a little less difficult. However, withdrawing money from any retirement plan should be a last resort.

What is a Hardship Withdrawal?

Since retirement funds are earmarked for when you are older, it is often hard to dip into those savings before you reach age 59 ½. There are certain cases, if your plan allows it, which can alleviate some of the stress when you face a hardship and need access to that money.

The following criteria must be met to allow for a hardship withdrawal:

  • The withdrawal is due to an “immediate and heavy financial need
  • It must be necessary to satisfy that need
  • It must not exceed the amount needed
  • You must have first obtained all distribution or nontaxable loans available under your plan
  • You can’t contribute to the plan for six-months following the withdrawal

Further, it will only be considered a hardship if one of the following events occur:

  • Certain medical expenses
  • Costs relating to the purchase of a principal residence
  • Tuition and related educational fees and expenses
  • Payments necessary to prevent eviction from, or foreclosure on, a principal residence
  • Burial or funeral expenses
  • Certain expenses for the repair of damage to the employee’s principal residence

2019 Hardship Withdrawal Rules – What is Changing?

Thanks to the Bipartisan Budget Act of 2018 (BBA), certain rules for hardship withdrawals are being enacted. This change will be in effect for the 2019 plan year (Jan 1 for calendar year plans). Here are the major aspects that pertain to hardship withdrawals:

  1. You will not be required to take a plan loan before a hardship withdrawal is allowed (though it may still be a plan option)
  2. There will not be a need to suspend the employee deferral/contribution for six months after a hardship withdrawal
  3. You will be able to distribute other types of contributions beyond employee salary deferrals including qualified non-elective contributions, qualified matching contributions, safe harbor contributions, and earnings from all eligible sources.

Further Discussion About Each Change

First, the requirement to first take out a loan from your plan is eliminated. Currently, if a plan loan option was available, you must first utilize the loan before you could take a hardship withdrawal. Starting next year, this will not be a requirement. However, the plan may still impose this condition if it so chooses.

Secondly, your inability to contribute to your plan for six months after taking a hardship withdrawal will be eliminated. This rule must be in place no later than January 1, 2020. If you are currently suspended from making contributions to your plan, you may begin again starting with the 2019 plan year. Again, this will be a plan option, as an IRS transitional period leading up to the change.

Lastly, the BBA expanded funds eligible to be taken as a hardship withdrawal. However, the use of these funds will remain a plan option starting in 2019. One of the accounts included in this is a 401(k) safe harbor plan called qualified automatic contribution arrangement (QACA) which may require a vesting period. Any amount that is not yet vested will not be eligible to be withdrawn. Rules for 403(b) plans are different as well.

Above, we listed the six events that currently had to occur for a hardship withdrawal to be considered. A seventh qualifying expense will be added pertaining to federal disaster declarations. When a disaster is declared by FEMA, “expenses and losses—including loss of income—incurred by the employee” will be considered (beginning January 1, 2018).

The Tax Cuts and Jobs Act of 2017 eliminated the deduction for personal casualty losses, except in the case of FEMA-declared disasters. This effected the hardship withdrawal allowed to the “repair of damage to the employee’s principal residence”. The regulations now imposed will allow for this in regards to hardship withdrawals.


There is still much to be discussed about the new laws concerning hardship withdrawals. Plan sponsors need to take action now so that they are in compliance with the new rules. Final guidance is still to come, but hopefully, nothing major will be added or changed. The 2019 Hardship Withdrawal Rules will allow your employees easier access to funds they might absolutely need to stay afloat.

For more information about the 2019 Hardship Withdrawal Rules, please contact us @ 800.472.0646.

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