The IRS on Nov. 29 issued a reminder in IR-2018-236 that the hardship withdrawal regulations that it issued earlier in November contain provisions that allow 401(k) plans and similar employer-sponsored retirement plans to make loans and hardship distributions to victims of Hurricane Michael and Hurricane Florence and to members of their families.
The relief means that 401(k) participants, employees of public schools and tax-exempt organizations with 403(b) tax-sheltered annuities, and state and local government employees with 457(b) deferred-compensation plans may now be eligible to take advantage of streamlined loan procedures and liberalized hardship distribution rules. IRA participants may not take out loans from their accounts, but they may be eligible to receive distributions under liberalized procedures.
Retirement plans can provide this relief to employees and certain members of their families who live or work in disaster areas affected by Hurricane Michael or Florence and designated for individual assistance by the Federal Emergency Management Agency (FEMA). To qualify for this relief, hardship withdrawals must be made by March 15, 2019. A complete list of eligible localities is available on FEMA's Disasters page.
The IRS also is relaxing procedural and administrative rules applicable to retirement plan loans and hardship distributions. In addition, the six-month ban on 401(k) and 403(b) contributions that normally affects employees who take hardship distributions will not apply.
Plans can:
- make loans or hardship distributions before they formally amend the plan to provide for such features;
- ignore the reasons that normally apply to hardship distributions; and
- relax any requirements regarding certain documentation required before a distribution is made.
Tax Treatment Unchanged, However
The IRS includes a caveat — the relaxed rules do not also spell tax relief. The IRS emphasizes that the tax treatment of loans and distributions remains unchanged..
Finding Out More
More information about other tax relief related to Hurricanes Florence and Michael can be found on the IRS disaster relief page.
Additional coverage of relief the IRS has provided to certain victims of Hurricanes Florence and Michael is available here:
https://www.ntsa-net.org/news-resources/irs-grants-relief-florida-victims-hurricane-michael
https://www.ntsa-net.org/news-resources/irs-provides-relief-alabama-victims-hurricane-michael
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