By Richard R. Hammar, J.D., LL.M., CPA
© Copyright 2001 by Church Law & Tax Report. All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m63 c0103
Provisions relating to hardship withdrawals. Prior to EGTRRA elective deferrals under a tax-sheltered 403(b) annuity could not be distributed prior to the occurrence of one or more specified events. One such event was the financial hardship of the employee, which IRS regulations defined as an immediate and heavy financial need for which a premature distribution was needed. The regulations provided a safe harbor under which a distribution would be deemed necessary to satisfy an immediate and heavy financial need. One requirement of this safe harbor was that the employee be prohibited from making elective contributions and employee contributions to the plan and all other plans maintained by the employer for at least 12 months after receipt of the hardship distribution.EGTRRA directed the IRS to revise the regulations to reduce from 12 months to 6 months the period during which an employee must be prohibited from making elective contributions and employee contributions in order for a distribution to be deemed necessary to satisfy an immediate and heavy financial need.
The revised regulations took effect in 2002.