Trnr395 Posted February 16, 2009 Report Posted February 16, 2009 I have a client that claims that she was told by her employer that she could take some of her retirement out (before age 59 1/2) because her house was being foreclosed on and she needed the money due to "financial hardship" I can't find any code that states this as an exception. I was always aware of the first time homebuyer and the higher education or for major medical expenses. The 1099 has the distribution code 1 so the penalty is calculated. Am I missing this exception or is she still forced to pay the 10% penalty. Thanks Quote
TAXBILLY Posted February 16, 2009 Report Posted February 16, 2009 Some plans have a hardship provision where the participant can borrow the money and then pay it back. Your client would have to read the plan that she received from the employer. taxbilly Quote
OldJack Posted February 16, 2009 Report Posted February 16, 2009 Her employer is probably thinking about the exception in the plan itself that allows someone to take money out due to hardship. There is no exception for hardship for tax purposes. She will have taxable income plus the 10% penalty. She should be happy to pay the tax and penalty if it saves her from home foreclosure, many today do not have a retirement plan to draw from. Quote
Tax Prep by Deb Posted February 16, 2009 Report Posted February 16, 2009 Some plans have a hardship provision where the participant can borrow the money and then pay it back. Your client would have to read the plan that she received from the employer. taxbilly I had a client who took a hardship distribution and it was just that. It wasn't a loan, but according to the plan documents if he took a hardship distribution he was not allowed to participate in the plan for two years. So it's the plan's rules, not necessarily IRS rules. There are few exceptions to the distribution penalty from IRS standpoint. Deb! Quote
Trnr395 Posted February 16, 2009 Author Report Posted February 16, 2009 I had a client who took a hardship distribution and it was just that. It wasn't a loan, but according to the plan documents if he took a hardship distribution he was not allowed to participate in the plan for two years. So it's the plan's rules, not necessarily IRS rules. There are few exceptions to the distribution penalty from IRS standpoint. Deb! So you are saying that based on the plan rules you can withdrawl the money....but you are still going to have the 10% penalty regardless...right?? Quote
taxtrio Posted February 16, 2009 Report Posted February 16, 2009 I agree, the plan rules are one thing... the IRS rules are what we are concerned with. Taxtrio Quote
JRS Posted February 16, 2009 Report Posted February 16, 2009 So you are saying that based on the plan rules you can withdrawl the money....but you are still going to have the 10% penalty regardless...right?? Had the same thing last year, unfortunately, the IRS wins. Quote
Recommended Posts
Join the conversation
You can post now and register later. If you have an account, sign in now to post with your account.