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What Does The IRS Know That You Don't That Makes Using E-Certification For Hardship Withdrawals Inad

A free white paper by Madison Pension Services, Inc.

The plan sponsor is responsible for the proper administration of hardship withdrawals. Under IRS regulations, hardship withdrawals must satisfy two criteria: (1) The participant must be experiencing (and be able to demonstrate) an immediate and heavy financial need, and; (2) The distribution is necessary to satisfy that immediate and heavy financial need. IRS exams have shown that self-certification is permitted to show that a distribution was the only way to alleviate a hardship. That satisfies item number two. However, allowing participants to self-certify the nature of the hardship is not in the eyes of the IRS, sufficient. (number one). Since both (1) and (2) must be satisfied for a proper hardship distribution, plan sponsors must request and retain additional documentation to prove the nature of the hardship.

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