Are hardship distributions eligible for rollover?

Hardship distributions from a 401(k) plan are generally not eligible for rollover. This means that once an employee takes a hardship distribution, they cannot transfer those funds to another retirement account, such as an IRA or another 401(k), to defer taxes. The purpose of a hardship distribution is to provide immediate financial relief for specific urgent needs, and the tax treatment reflects that immediacy.

When a participant takes a hardship distribution, the funds are considered to be distributed to them permanently, and they will incur taxes and possibly penalties on that money, unlike other distributions that may allow for rollover options. This rule is integral to maintaining the integrity of the plan's tax-deferred status while allowing for necessary withdrawals in times of hardship.

While certain distributions, such as those for loans or in-service withdrawals, may be eligible for rollover depending on the plan, hardship distributions are distinctly excluded from these provisions under IRS regulations. Thus, the correct answer emphasizes the non-rollover nature of hardship distributions to prevent immediate financial needs from being deferred further into the retirement planning process.