The Internal Revenue Service announced it
would provide relief to taxpayers adversely impacted by Hurricane Harvey by
allowing use of 401(k) assets to address hardships caused by the storm and
easing any associated tax rules.
Distributions in the form of a
loan or in the event of a hardship such as an unforeseeable emergency provide
ways for retirement savers to tap assets they've accumulated in 401(k) plans,
but typically come with specific rules, such as verification procedures. A plan
must also contain language expressly authorizing such distributions.
Qualified retirement plans won't
be deemed to be out of compliance with tax rules when granting a loan or
hardship distribution to an employee whose principal residence falls in a Texas
county the Federal Emergency Management Agency identified for individual
assistance due to devastation from the storm.
The IRS provided similar relief
to taxpayers and employers following Hurricane Sandy in 2012. Loans and
hardship distributions are forms of plan "leakage" some view as
detrimental to retirement savers.
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 Aug. 23, when weather forecasters posted
a hurricane watch, and no later than Jan. 31, 2018.
A plan that makes a loan or
hardship distribution — and doesn't currently allow for one — must amend its
documentation within one "plan year" beginning after December 31,
2017.