>According to an IRS Information Letter , a 401(k) plan may make a hardship distribution if the distribution is made on account of an immediate and heavy financial need of the participant; the withdrawal is usually subject to a 10% additional tax (beyond the normal taxation on withdrawal). One exception is for medical care expenses under Code Section 213.
>Under Section 213, taxpayers are usually allowed to deduct expenses paid during the year for medical care of the participant and the participant’s spouse or dependent. Using this as a basis for its ruling, the IRS stated that since a surrogate mother and unborn child are not a participant’s spouse or dependent (an unborn child cannot be a dependent), they generally are not eligible for the deduction.
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