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Documentation for Hardship Withdrawals and Home Loans

This article originally ran on May 19, 2015.

By Ellie Lowder, TGPC, Consultant

In two newsletters, the IRS surprised many in the retirement industry with the assertion that failure to properly document hardship withdrawals or home loans is a qualification failure. Since this appears to be a departure from past IRS positions, and because articles do not have the weight of regulatory guidance, several organizations have filed comment letters questioning this method of apparently stating a new position. The NTSA GAC will also engage in discussions with the IRS to attempt to obtain clarity on the issue.

Of particular concern was the verbiage, which appears to require that a loan to purchase or make capital improvements to the participant’s principal residence not only include documentation to prove the intent of the loan, but also requires that documentation be obtained after the fact to prove that the purchase or the capital improvement actually took place.

While we on the NTSA Communications Committee don’t ordinarily report on a topic until the issues in it have been addressed, many of our members did read the IRS newsletters (the April 1 issue of Employee Plans News, and the substantially similar April 2 issue of Retirement News for Employers) and called to express concern.

This article is to let you know that we are working on obtaining clarity for our members and will be reporting back to you just as soon as we have it.