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Qualified retirement plans including 403(b) and 457(b) plans may, but are not required to, allow hardship distributions from the plan upon certain events. These events include the immediate and substantial financial need to pay medical or funeral expenses, to purchase a principal residence, to prevent foreclosure on a principal residence, or to pay tuition and education expenses.
In 2018, Congress passed the Bipartisan Budget Act of 2018 (BBA) which eased the criteria to receive certain hardship distributions. In fall 2019, the IRS published final regulations based on the changes made in the BBA. These final regulations impact a variety of important provisions related to hardship distributions. Specifically, the regulations provide guidance in the following areas:
The regulations apply to hardship distributions made on or after January 1, 2020. However, plan sponsors may amend their plan retroactively to apply the regulations for distributions made on or after January 1, 2018. If you are plan sponsor or participant and have questions about how the changes to hardship distributions may affect your plan, please contact your P&N tax advisor.