Certified Plan Sponsor Professional (CPSP) Practice Exam

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Can a hardship withdrawal be rolled over into another retirement account?

Yes, it can be rolled over
No, it cannot be rolled over
Only with special permission
It depends on the plan terms

The correct answer is: No, it cannot be rolled over

A hardship withdrawal cannot be rolled over into another retirement account due to the nature of the withdrawal itself. When an individual takes a hardship withdrawal from a retirement plan, it is typically intended to cover immediate and pressing financial needs, such as medical expenses, purchasing a home, or avoiding eviction. As a result, the Internal Revenue Service (IRS) classifies these withdrawals differently than other distributions. The tax regulations state that once a hardship withdrawal is made, it is treated as a taxable distribution, which means the funds are essentially taken out of the retirement account and cannot be placed back into it or any other retirement account later. This restriction is in place to ensure that the withdrawals serve their intended purpose of providing financial relief and is meant to discourage individuals from using their retirement savings for non-emergency expenses. Therefore, the statement that a hardship withdrawal cannot be rolled over is accurate and aligns with IRS guidelines regarding the treatment of such distributions.