401(k) hardship distribution rules: a matter of last resort

Article Abstract:

Hardship distributions from a 401(k) plan can be permitted under two general rules: safe harbor rules and general rules. Safe harbor rules cover situations when a deemed hardship can be ascertained, such as when the distribution is to be used to cover certain types of medical care expenses, when the distribution is used to cover post-secondary education, or when the distribution is used to purchase a principal residence. General rules cover situations when it is deemed necessary to use a distribution to cover an overriding financial need. In such a case, the distribution must meet four requirements specified by the Internal Revenue Code. A withdrawal made by a 401(k) plan participant, either under general or safe harbor rules, is subject to heavy tax and penalty consequences and should therefore only be done as a last resort.

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Required minimum distribution issues

Article Abstract:

Taxpayers can be affected by the computation of their required minimum distribution amount (MRDA), the timing of the distribution and the recording of the election. MRDA calculation is straightforward. For the 1996 taxable year, MRDA is obtained by dividing the account balance by the applicable life expectancy (ALE). The account balance is defined as the amount as of Dec. 31 of the year before the distribution year. On the other hand, the ALE is based on the assigned beneficiary on the plan and the ALE method. The two possible ALE methods are the annual recalculation or ALE minus one. Accountants should remember that the selection of the designated beneficiary has bearing not only on the MRDA calculation during the life of the account owner but also on the distribution to the beneficiary.

Accounting and auditing, Individual retirement accounts

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Job-seeking expenses

Article Abstract:

Job-hunting is a stressful activity which can also be very expensive given the high cost of application letters, mail and traveling expenses. To alleviate some of the financial burdens of job seekers, the Internal Revenue Code (IRC) offers some form of tax relief in the form of tax deductability of certain job application expenses. However, this help is limited to those looking for work that is the same as, or similar to the work they currently have. Aside from meeting the nature of employment requirement, job applicants may qualify for the tax deductions if the nature and extent of expenses satisfy IRC criteria. Job seeking costs must be itemized on Schedule A, otherwise they will be considered tax deductible. Most importantly, expenses must be accompanied by proper documentation.

Finance, taxation, & monetary policy, Management, Taxation, Tax deductions, Job hunting, United States. Internal Revenue Service

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