NO EARLY DISTRIBUTION PENALTY WAIVER DESPITE “FINANCIAL HARDSHIP”

In the recent Kott decision (TC Summary Opinion 2015-42), the Tax Court took a hard line in the case of a 401(k) distribution to a taxpayer under age 59-1/2 even though he used the money to catch up on his delinquent mortgage payments in an effort to avoid foreclosure.

The Code does provide for certain exceptions to the application of the penalty, but Courts have held that those exemptions do not include a general “financial hardship” situation, even though such a situation can allow the plan to actually make the distribution itself.