The key element is that the circumstance must be “beyond the control of the participant,” CCH notes in a summary of the guidance.
In Revenue Ruling 2010-27, the IRS says that generally, the Model Amendment contained in the Appendix to Revenue Procedure 2004-56 defines an unforeseeable emergency as a severe financial hardship of the participant resulting from any of the following developments:
- An illness or accident of the participant, the participant’s spouse, or the participant’s dependent;
- The loss of the participant’s property due to casualty, including the need to rebuild a home following damage to a home not otherwise covered by homeowner’s insurance (such as a natural disaster);
- The need to pay for funeral expenses of the participant’s spouse or dependent; and
- Any other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the participant.
The IRS provides its guidance in the form of three hypothetical examples. In the first, an emergency distribution was requested to repair the participant’s principal residence because of significant water damage that is not covered by insurance. The agency said this is substantially similar to the need to pay for damage to a home as a result of a natural disaster, and is a permissible emergency distribution because it is the result of events beyond the control of the participant.
In the second example, an emergency distribution was requested to pay for the funeral expenses of an adult son who is not a dependent. Again the IRS said this is permissible because it “is an extraordinary and unforeseeable circumstance that arises as a result of events beyond the control of the participant and that is substantially similar to the need to pay for funeral expenses of a dependent.”
However, in the third example, a participant requests an emergency distribution to pay for accumulated credit card debt. This is not a permissible emergency distribution the IRS said because it is not “due to any events that are extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the participant.”The Revenue Ruling can be found in Internal Revenue Bulletin 2010-45 (page 20), which is at http://www.irs.gov/pub/irs-irbs/irb10-45.pdf.