Smart Benefits: IRS Allowing 401(k) Loans for Hurricane Victims & Families
The IRS is allowing 401(k)s and other qualified employer-sponsored retirement plans to make loans and hardship distributions for victims of Hurricane Harvey and Irma as well as members of their families – and to access the money more quickly thanks to a relaxing of procedural and administrative rules that normally apply.
Retirement plans can provide the relief to employees who live or work in areas affected by hurricanes Harvey and Irma and designated for assistance by FEMA (eligible localities are listed here). Participants may also take a loan or hardship distribution for the benefit of certain family members (child, parent, grandparent or other dependents) who live or work in a covered disaster area.
Participants can take a hardship distribution or borrow up to the specified statutory limits from the plan. Hardship withdrawals must be made by Jan. 31, 2018. Plans can make the distributions before a plan is formally amended to provide for such features.
According to the IRS, the tax treatment of loans and distributions remains unchanged, meaning, retirement plan loan proceeds are tax-free if they are repaid within five years and hardship distributions are generally taxable and subject to a 10-percent early-withdrawal tax.