What are the consequences of taking a hardship distribution of elective contributions from a 401(k) plan?
After an employee receives a hardship distribution of elective contributions from his or her 401(k) plan, generally the employee will be prohibited from making elective contributions and employee contributions to the plan and all other plans maintained by the employer for at least 6 months after receipt of the hardship distribution. (Reg. ยง1.401(k)-1(d)(3)(iv)(E)(2)) Hardship distributions are includible in gross income unless they consist of designated Roth contributions. In addition, they may be subject to an additional tax on early distributions of elective contributions. Unlike loans, hardship distributions are not repaid to the plan. Thus, a hardship distribution permanently reduces the employee’s account balance under the plan. A hardship distribution cannot be rolled over into an IRA or another qualified plan.
