I have received contradictory information as to whether or not deferrals distributed under hardship rules are subject to the 10% early withdrawal penalty in light of the new rules applicable to such distributions after 12/31/98 (or 12/31/99 if transitional relief in Notice 99-5 is used). I believe that the deferrals continue to be subject to the 10% early withdrawal penalty. Please provide feedback. Thank you.

Hardship distributions to participants under the age of 59 1/2 are subject to the 10% premature distribution tax. This would include elective contributions. The IRS Restructuring and Reform Act in addition to IRS Notice 99-5 provided no relief for the premature distribution tax on hardship distributions.

I agree with mquincy, in case you're looking for consensus.

Perhaps the conflicting information lies in the fact that hardships from deferrals are no longer subject to the mandatory 20% withholding. Someone you talked to has things jumbled.