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You should bookmark this table:
While a hardship is accepted for distribution, that doesn't mean it avoids penalty.
https://www.irs.gov/retirement-plans/401k-plan-hardship-distributions-consider-the-consequences
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What is confusing is the first bookmark says education hardships from 401K plans NOT exempt from the 10% penalty in the table but exempt is distribution taken from IRA. The code on the 1099-R also does not reference hardship so will it need to be corrected. I read these links already and the words appear to contradict the table. I am looking for more clarity on the matter. Also since the loan repayment was then deferred until May 2022 and made no payments in 2021. Does the repayment matter need to have occurred?
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401(k) and IRA get different treatment for some things.
The more I know the more I don’t know.
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"The code on the 1099-R also does not reference hardship so will it need to be corrected."
The IRS doesn't care. Hardship is the provision that Plan Administrator either allows or doesn't allow.
401(k) does not waive the penalty.
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