The Evolution of Hardship Distributions

Congress continues to pass laws allowing participants better access to their retirement accounts while actively working. Distributions from an employer sponsored retirement plan made to actively working participants are called “in-service” distributions. One type of in-service distribution is a hardship distribution, which is a withdrawal from a participant’s 401(k) or 403(b) plan due to an “immediate and heavy financial need.” This amount is limited to the amount necessary to satisfy the financial need.

Most plans allow hardship distributions only under specific circumstances. The law states that “safe-harbor” expenses qualify as an “immediate and heavy financial need:”

  1. Certain medical expenses
  2. Costs relating to the purchase of a principal residence
  3. Tuition and related educational fees and expenses
  4. Payments necessary to prevent eviction from, or foreclosure on, a principal residence
  5. Burial or funeral expenses
  6. Certain expenses for the repair of damage to the employee’s principal residence
  7. Added in 2019 – expenses resulting from a federally declared disaster, including expenses and losses (including loss of income), if principal residence or place of employment are located in a designated FEMA disaster area


If a plan allows hardship distributions, the plan document will specify what information must be provided to demonstrate a hardship. It’s important to remember that unlike plan loans, a participant cannot repay a hardship distribution. These distributions reduce a participant’s account balance and are subject to income tax (as well as a 10% early withdrawal penalty if under age 59 ½.

Congress Relaxes Hardship Distribution Rules

Starting in 2019, with the passage of the Bipartisan Budget Act of 2018, Congress modified the rules relating to hardship distributions. They continue to eliminate restrictions for participants to access their retirement accounts for hardships. Notable changes made in 2019 were:

  • Participants no longer need to take a plan loan before taking an allowable hardship withdrawal
  • Elimination of the 6-month suspension of employee salary deferrals following a hardship withdrawal
  • All historical earnings can be distributed for hardships (not applicable for 403(b) plans until 2024)
  • Additional employer contributions are available for hardships, e.g., safe harbor, qualified nonelective and matching contributions (not applicable for 403(b) plans until 2024)
  • Addition of FEMA disaster hardship safe harbor reason #7 above

 How the SECURE 2.0 Act Impacts Hardships

The SECURE 2.0 Act, signed on December 29, 2022, streamlines the hardship distribution process by allowing a plan administrator to rely on a participant’s self-certification that they have had a safe harbor event that signifies a deemed hardship. Effective in 2023, a participant can self-certify that the distribution is not in excess of the amount required to satisfy the financial need, and the participant has no alternative means reasonably available to satisfy the financial need. Similar rules will also apply to distributions from a governmental 457(b) plan due to an “unforeseeable emergency” of a participant.

In the past, 403(b) plans were more restricted on the types of funds available for hardship withdrawals. For plan years beginning after December 31, 2023, 403(b) plans will now be treated the same as 401(k) plans, meaning that 403(b) plans may also allow hardship withdrawals of employer contributions and historical earnings.


Hardship distributions can provide a lifeline when absolutely needed. The SECURE 2.0 Act’s new provisions ease the administrative process for plan sponsors, service providers, and participants when requesting and approving hardship distributions. Your TRI-AD Client Service Manager is available to help you answer any questions you may have about this new provision and how it may impact your retirement plan.



TRI-AD and our Associates’ suggestions or recommendations shall not constitute legal advice. No content on our website can be construed as tax or legal advice, and TRI-AD may not be considered your legal counsel or tax advisor. Clients are encouraged to consult with their tax advisor and/or attorney to determine their legal rights, responsibilities, and liabilities. This includes the interpretation of any statute or regulation, federal, state, or local; and/or its application to the clients’ business activities.