IRS Provides Relief for Victims of Hurricane Harvey by Relaxing Plan Rules

IRS Provides Relief for Victims of Hurricane Harvey by Relaxing Plan Rules

The IRS Announced (Announcement 2017-11) on Wednesday, September 30, 2017 that it has provided relief to victims of Hurricane Harvey by relaxing regulation on Qualified Employer Plans including 401k and 403 Plans.

Relief is available to qualified plans that make a loan, or a hardship distribution for a need arising from Hurricane Harvey, to an employee or former employee whose principal residence on August 23, 2017, was located in one of the Texas counties identified for individual assistance by the Federal Emergency Management Agency (“FEMA”).

If a retirement plan does not have a feature for hardship distributions, Plans will be permitted to make loans or hardship distributions before the Plan is formally amended to allow for such features. However, the Plan must amend its documentation within one “plan year” beginning after December 31, 2017.

Also, documentation requirements have also been relaxed so that Plans may ignore the reasons that usually apply to hardship distributions and documentation requirements have been waived to allow for quicker distributions.

To qualify for relief from some of these rules, distributions must be made on account of a hardship caused by the storm, and must be made on or after August 23, 2017 and no later than Jan. 31, 2018.

Tax treatment of loans and distributions stays unchanged. Loans are tax free if repaid over a period of five years or less. Hardship distributions are typically subject to a 10 percent tax on early distributions from retirement accounts such as 401(k)s unless the taxpayer qualifies for an exception to the tax.

See the full IRS publication here: https://www.irs.gov/pub/irs-drop/a-17-11.pdf

Need help navigating the rules? Give us a call and we can have one of our Retirement Plan Solutions professionals assist you.