Following a foreclosure sale of his residence, EE signs a "short-term" note in favor of ER that gives $3,000 to EE to use to pay first and last months rent and security deposit on a rental home. The note provides "The funds may only be used as an initial payment on the rental home. It is expected that EE will withdraw the funds from his 401(k) in order to repay the loan. Requiring payments from EE's future payroll does not appear possible because those funds will be needed to sustain his family with the daily expense."

Now, three months later, the ER has seeked assistance on the processing of the hardship withdrawal request by the EE so that he will have funds with which to repay the loan. The intervening note process is explained as having been need due to the last minute timing, and problems the EE had in trying to assemble the supporting documents to request a 401k hardship withdrawal at the time.

The plan's hardship provisions are safe harbor.

Thoughts on whether the 3 months since the loan was extended blows the possibility of this being a hardship for purposes of acquiring a principal residence?

First, I am not aware of anything that says moving into a rental home is acquiring a principal residence. Second, the funds for the purpose were obtained without hardship withdrawal. It is at best very agressive to use a hardship withdrawal to cover a separate debt, even if the debt orginated from an elgible situation. So much the worse if the loan is from the employer.

John --

I agree with QDROphile.

The regs' SH hardship withdrawal event is for the purchase (rather than acquisition) of a principal residence. So, the more difficult question does not have to be answered.

But, if it were applicable, I think the 3-month lag would be fatal (since the SH hardship withdrawal event no longer exists)--again sidestepping whether payment of this separate loan would ever be considered a SH hardship withdrawal event in the first place (which I think it could be, if the withdrawal were actually in process and the loan was, e.g., a 2-day bridge loan).