401k hardship w/d taxed as ordin income. include as ordin income when calculating pension payment?

Question

Good morning
I recently withdrew 89,000 from my 401k as a hardship w/d and paid tax as ordinary income plus 10% penalty. Fine. My company offers a pension plan that uses annual income to calculate payments. Since the 89,000 w/d was counted as ordinary income, I should be able to add it to my income in the current year (60,000 normal annual income) to come up with 149,000 in annual income for pension calculation in 2007. Comments? thank you very much for answers. Due to complexity of this topic, If possible pls cite US tax code or cases supporting your answer

Answer 1

No, just your income from your job, not from the withdrawal, counts toward what you can put in.

Answer 2

No need to cite a case, actually is quite simple. Your company doesn't use ordinary income. They use w-2 or section 415 compensation to determine the pension benefit. And the IRS has very specifically excluded distributions from this type of compensation. Thus, the hardship distribution doesn't count towards your 2007 benefit. Your plan document will spell out quite clearly the income that's being used.

Basic rule of thumb is that if you (and your employer) pay social security tax on the money it's very likely section 415 compensation.

Rules are slightly different for self-employed individuals but the basic premise remains and distributions are not includible.

I've included a white paper that spells out very clearly what is and what is not considered compensation.