Hurricane Harvey Victims: Easier Access to Retirement Funds

Hurricane Harvey Victims: Easier Access to Retirement Funds

On August 30, 2017, the IRS announced that 401(k)s and similar sponsored retirement plans can make loans and hardship distributions to victims of Hurricane Harvey and members of their families. Additionally, the IRS is also relaxing procedural and administrative rules that normally apply to retirement plan loans and hardship distributions.

With the relaxed rules, a plan may rely on the representations made by a victim as to the need for and amount of hardship distribution. The amount may not exceed the specified statutory limits from the victim’s retirement plan. However, the relief applies to any hardship of the employee, not just the types enumerated in the regulations, and no post-distribution contribution restrictions are required.

Retirement plans can provide this relief to employees and certain members of their families who live or work in disaster area localities affected by Hurricane Harvey. These areas are identified on FEMA’s website at http://www.fema.gov/disasters. If a plan makes Hurricane Harvey withdrawals available, the plan must be amended no later than the end of the first plan year beginning after December 31, 2017. Hardship withdrawals must be made by January 31, 2018.

The IRS emphasized that the tax treatment of loans and distributions remains unchanged. Ordinarily, retirement plan loan proceeds are tax-free if they are repaid over a period of five years or less. Under current law, hardship distributions are generally taxable and subject to a 10-percent early-withdrawal tax.

For further details, see Announcement 2017-11 posted on the IRS website.

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