In an indirect manner, and possibly unintended by Congress, the Tax Cuts and Jobs Act (“Act”) may affect the ability for a participant to receive a hardship distribution from their retirement plan.

Under the Act, the definition of a casualty loss is changed under the Internal Revenue Code (“Code”) and limits the ability to get a casualty loss deduction to a loss that is caused by a federally declared disaster. This limits the ability to get a casualty loss deduction to fewer instances and applies to losses occurring after December 31, 2017. For example, under the previous language, damage to your home due to a fire may have counted as a casualty loss. Under the Act, you would not get this deduction unless the fire was part of a federally declared disaster.

How does this affect hardship distributions? Some plans are designed to limit the ability to receive a hardship distribution to “safe harbor” reasons. One of the reasons under the safe harbor is a loss that would qualify for a casualty loss under Section 165 of the Code.

For more information or to determine whether this affects your plan, please contact your Nyhart consultant.