IRS Eases Retirement Plan Distribution Requirements for Hurricane Victims

 In Retirement Planning & Wealth Management

In the aftermath of the slew of hurricanes ravaging the North American coasts, many have suffered major losses and may not know how to pay for the damages. One way to help clients during this tough time is showing them how to navigate different options for accessing funds they may not realize they can tap into.

Your clients may not be aware that the IRS recently announced new provisions to make it easier for those affected by Hurricanes Harvey and Irma to access their employer retirement plans. Under the relief, employer plans are allowed to make loans and hardship distributions to eligible participants before the plan is formally amended. Also the plan can ignore the reasons that normally apply to hardship distributions, thus allowing them, for example, to be used for food and shelter. If a plan requires certain documentation before a distribution is made, the plan can relax this requirement as described in Announcements 2017-11 (Harvey) and 2017-13 (Irma).  In both cases, distributions must be made by January 31, 2018.

To be eligible, plan participants and certain family members must live or work in disaster localities designated for individual assistance by the Federal Emergency Management Agency (FEMA).  A list of eligible counties can be found on http://www.fema.gov/disasters. Even if a plan participant lives outside the disaster area, these liberalized loan and hardship distribution provisions apply to assisting a child, parent, grandparent or other dependent who lives or works in the disaster area.

Finally, the IRS reminds plan participants that hardship distributions are still subject to ordinary income taxes and a 10% premature distribution penalty. Similarly, IRA distributions are also subject to taxes and if the owner is under age 59½, a 10% premature distribution penalty unless one of the customary exceptions applies.

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The information contained herein is for educational purposes only and should not be construed as financial, legal or tax advice. Circumstances may change over time so it may be appropriate to evaluate strategy with the assistance of a professional advisor.  Federal and state laws and regulations are complex and subject to change.  Laws of a particular state or laws that may be applicable to a particular situation may have an impact on the applicability, accuracy, or completeness of the information provided.  Janus Henderson does not have information related to and does not review or verify particular financial or tax situations, and is not liable for  use of, or any position taken in reliance on, such information.