The IRS announced last week that it will allow victims of Hurricane Harvey and their families to more easily access assets held in employer-sponsored retirement plans. Specifically, the IRS will allow certain retirement plans to grant a loan or hardship distribution for a need arising from Hurricane Harvey even if the plan does not currently allow for loans or hardship distributions, provided that the plan is properly amended to allow for such distributions no later than the end of the following plan year.
In addition, the IRS eased the verification requirements and will allow plan administrators to rely upon representations from the plan participant as to the need for and amount of a loan or hardship distribution, unless the administrator has actual knowledge otherwise. However, plan administrators must still make a reasonable attempt to obtain the required documentation as soon as practicable after making the loan or distribution.
Importantly, the IRS did not raise the limit on the amount that a plan participant may withdraw as a loan or hardship distribution, so the amount available for withdrawal is still subject to the limits provided by the terms of the plan. It is also important to remember that although retirement plans can provide a source of income in a time of need, most distributions from your retirement plan will be taxable in the year you receive the distribution and may be subject to early withdrawal penalties.
What plans qualify for relief under this Announcement?
Any plan meeting the requirements of §401(a), §403(a), §403(b), or §457(b). This will include most employer-sponsored profit-sharing or 401(k) plans. Defined benefit or money purchase plans may not make hardship distributions pursuant to this relief.
Who may request a loan or hardship distribution under this Announcement?
An employee or former employee whose principal residence or place of employment on August 23, 2017 was located in one of the affected counties designated by FEMA for individual assistance or an employee whose lineal ascendant (i.e. parents or grandparents), descendant (i.e. children or grandchildren), dependent, or spouse had a principal residence or place of employment in one of the designated counties.
When do I need to request a loan or hardship distribution from my retirement plan?
All loans and hardship distributions for a need arising from Hurricane Harvey must be made no later than January 31, 2018 to qualify for relief under this Announcement.
What counties have been designated for individual assistance by FEMA related to Hurricane Harvey?
Aransas, Austin, Bastrop, Bee, Brazoria, Calhoun, Chambers, Colorado, DeWitt, Fayette, Fort Bend, Galveston, Goliad, Gonzales, Hardin, Harris, Jackson, Jasper, Jefferson, Karnes, Kleberg, Lavaca, Liberty, Matagorda, Montgomery, Newton, Nueces, Orange, Polk, Refugio, Sabine, San Jacinto, San Patricio, Tyler, Victoria, Walker, Waller, Wharton.
For more information, see Announcement 2017-11 or contact Alyca Riley.