IRS Eases Requirements for Retirement Plan Loans, Distributions for Victims of Hurricane Matthew (IR-2016-138; Ann. 2016-39)

CCH Tax Day Report

The IRS has announced streamlined procedures for loans and distributions from retirement plans in order to help benefit victims of Hurricane Matthew. Participants in 401(k) plans, 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 be able use these streamlined loan procedures and liberalized hardship distribution rules. Although participants in IRAs are barred from taking out loans, they may be eligible to receive hardship distributions under the new procedures.

Employers that provide retirement plans for their employees may provide this relief to employees, along with some family members, who live or work in a disaster area designated for individual assistance by the Federal Emergency Management Agency (FEMA). Areas that currently qualify for assistance include parts of North Carolina, South Carolina, Georgia and Florida. For a complete list of eligible counties, visit https://www.fema.gov/disasters.

Certain administrative and procedural rules ordinarily applicable to retirement plan loans and hardship distributions are also being relaxed. Plan participants will be able to access their money more quickly and with less paperwork. Further, the six-month ban on 401(k) and 403(b) contributions that normally applies to employees taking hardship distributions will not apply.

As a result of the new relief, a retirement plan may allow a Hurricane Matthew victim to take a hardship distribution or borrow up to the statutory limit from the victim’s retirement plan. In addition, someone living outside of the disaster area may take a loan or hardship distribution from his or her retirement plan and use it to help a son, daughter, parent, grandparent, or other dependent who lived or worked in the disaster area.

A plan that does not contain provisions authorizing such loans or distributions must be amended by the end of the first plan year beginning after 2016. Plans may make loans or distributions prior to amendments to the plan allowing them, may ignore the reasons ordinarily applicable to hardship distributions, and may relax documentation requirements. To qualify, a hardship distribution must be made on or after October 4, 2016 (October 3, 2016, for Florida) and no later than March 15, 2017.

IR-2016-138

Announcement 2016-39, 2016FED ¶46,443

Other References:

Code Sec. 401

CCH Reference – 2016FED ¶18,112.10

Code Sec. 403

CCH Reference – 2016FED ¶18,282.393

Code Sec. 457

CCH Reference – 2016FED ¶21,536.24

Code Sec. 7508A

CCH Reference – 2016FED ¶42,687C.101

CCH Reference – 2016FED ¶42,687C.22

Tax Research Consultant

CCH Reference – TRC FILEIND: 15,204.25

CCH Reference – TRC FILEBUS: 15,110

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CCHTaxGroup

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