Benefits Plans - Retirement Savings Plans: Cash Withdrawals -
403(b) SRA Hardship Withdrawals (Current Employees)
What is a 403(b) SRA hardship withdrawal?
You may be eligible to withdraw your contributions (earnings are not available) if you have a 403(b) SRA with TIAA-CREF or Fidelity Investments due to a financial hardship. There are no provisions for such a withdrawal under the Basic Retirement Plan or the 457(b) deferred compensation plan. However, U.S. Treasury Department regulations require that you must take a loan from the 403(b) SRA and 457(b) plan (if participating) to meet the financial need before taking a hardship withdrawal.
What qualifies as a hardship?
A hardship must meet two requirements, per regulations issued by the U.S. Treasury Department. First, you must have an immediate and heavy financial need. Second, the distribution cannot exceed the amount necessary to relieve the financial need.
Immediate and Heavy Financial Need
The hardship must be the result of an immediate and heavy financial need that you experience. There are six expenses that the IRS has indicated are deemed to satisfy this requirement:
- Expenses for medical care that would be tax-deductible under IRC section 213(d), for the employee, spouse, or dependents;
- Costs directly related to purchase of the principal residence (excluding mortgage payments) of the employee;
- Payment of tuition, related educational fees, and room and board expenses for the employee, spouse, or dependents for the next 12 months of post-secondary education;
- Payments necessary to prevent eviction of the employee from the employee’s principal residence or foreclosure on the mortgage of that residence.
- Payments for burial or funeral expenses for the employee’s deceased parent, spouse, children, or dependents;
- Expenses for the repair of damage to the employee’s principal residence as a result of a casualty loss defined by the IRS as damage, destruction, or loss of property resulting from an identifiable events that is sudden, unexpected, or unusual that would qualify for the casual deduction under IRC section 165.
You will need to supply appropriate documentation to TIAA-CREF and/or Fidelity that demonstrates the amount of the need and that you have incurred one of the six expenses listed above. The term “dependents” refers to those individuals defined by the Internal Revenue Code (IRC) under section 152.
Distribution Cannot Exceed Amount Necessary to Relieve the Financial Need
The withdrawal cannot exceed the amount necessary to meet the financial need and it cannot be satisfied from other resources reasonably available to you. This is referred to as the Safe Harbor method and requires the following:
- The distribution is not in excess of the need;
- You have taken all distributions and loans available from all employer plans; and
- Your elective deferrals (voluntary contributions) to your employer plans are suspended for a minimum of six consecutive months.
How do I arrange for an SRA hardship withdrawal?
Contact TIAA-CREF and/or Fidelity Investments to speak with a counselor and determine if you are eligible.
- Fidelity Investments............800-343-0860
If you meet the eligibility criteria, TIAA-CREF and/or Fidelity will send you an application for the hardship withdrawal. Return your completed forms to the vendor with the appropriate documentation demonstrating the amount of the need and that it meets one of the six qualifying expenses.
What role does the Benefits Office have in approving the request?
None. All requests for hardship withdrawals should be directed to TIAA-CREF and/or Fidelity Investments. The University of Michigan does not review or approve the hardship withdrawal request or collect the documentation to support the financial need of the hardship.
Do I pay taxes and penalties on the withdrawal?
Income tax is due on the amount you cash out. Cash withdrawals made prior to age 59½ are generally subject to an IRS 10% early withdrawal penalty. Consult with a qualified tax advisor for complete details.
Qualified distributions of after-tax Roth 403(b) SRA amounts are tax free. For more information visit: Roth FAQs.
How does a hardship withdrawal affect my participation in the U-M plan?
U.S. Treasury Department regulations require that you cannot make any elective deferrals (voluntary contributions) to your employer plans for a minimum of six months. This means your participation in all U-M savings plans will be suspended for at least six months:
- Your 5% contribution and the University 10% matching contribution will be canceled.
- Any additional contributions you make to an SRA and 457(b) will also be canceled.
If you are a compulsory participant in the retirement plan (age 35 or older, two or more years of service, and a 100% appointment), you will be enrolled in the Reduced Benefit Option:
- Under this feature, the university provides a lower contribution of 5% instead of 10%, and no employee contributions are taken on earnings up to the Social Security wage base ($117,000 for 2014).
- On earnings exceeding the wage base, you are required to contribute 5% and the university match increases to 10%.
How do I enroll again in the plan after the six-month suspension?
You must re-enroll to restart your participation in the Basic Retirement Plan and SRA. You are not automatically enrolled after the six-month suspension period; your participation will only be reinstated when the Benefits Office receives your properly completed form.
The University of Michigan in its sole discretion may modify, amend, or terminate the benefits provided with respect to any individual receiving benefits, including active employees, retirees, and their dependents. Although the university has elected to provide these benefits this year, no individual has a vested right to any of the benefits provided. Nothing in these materials gives any individual the right to continued benefits beyond the time the university modifies, amends, or terminates the benefit. Anyone seeking or accepting any of the benefits provided will be deemed to have accepted the terms of the benefits programs and the university's right to modify, amend or terminate them.