Under "safe harbor" rules for retirement plans, a hardship withdrawal can be made for which reason?

The correct answer revolves around the nature of hardship withdrawals as defined under "safe harbor" rules for retirement plans. Hardship withdrawals are intended to provide financial relief for immediate and pressing needs. Among the options listed, the withdrawal for medical expenses stands out as a recognized reason under these rules.

Medical expenses typically qualify for hardship withdrawals because they represent necessary expenditures that can impact an individual's financial stability considerably. The Internal Revenue Service (IRS) allows withdrawals for unreimbursed medical expenses incurred by the participant, their spouse, or dependents, making this option a legitimate source for a hardship withdrawal.

The other choices do not align with the specific guidelines set forth for hardship withdrawals. For instance, while college tuition is an important expense, the IRS provides limitations on what constitutes an immediate financial need. The purchase of a principal residence and a new car are also not considered essential needs under the hardship withdrawal criteria, as they tend to be viewed more as discretionary spending rather than immediate financial hardship.

In summary, qualifying for a hardship withdrawal under safe harbor rules focuses on addressing substantial and urgent financial burdens, with medical expenses fitting this criterion better than the other choices.