Historically, Congress has allowed retirement plans to offer loans and distributions to give relief to employees and certain members of their families that live in disaster areas. Due to the devastation of Hurricanes Harvey, Irma and Maria, Congress has granted relief from some of the retirement plan distribution rules to victims of these disasters. The highlights of the relief are:
Qualified Hurricane Distributions
Qualified distributions of up to $100,000 (minus any previous qualified hurricane distributions) in relation to hurricane damage will be permitted. The terms of these distributions are:
- They are allowed even if plan doesn’t allow in-service distributions.
- Taxation is done over 3 years.
- The mandatory 20% withholding and 10% premature distribution penalty is not applied.
- Repayment to any eligible retirement plan is allowed within 3 years.
Loan Relief
The loan limits are increased to up to 100% of the participant’s vested account balance or $100,000 (normally 50% of the vested balance of up to $50,000). Repayments due on loans taken during this time can be delayed up to a year and the five-year repayment periods will not include the time between the qualified beginning date through December 31, 2018.
To find out if you are eligible for either of these distributions, a complete list of locations can be found on the FEMA website at https://www.fema.gov/disasters. In addition, the qualified beginning date of these distributions are August 23, 2017 for Hurricane Harvey, September 4, 2017 for Hurricane Irma, and September 26, 2017 for Hurricane Maria and distributions may be made through December 31, 2018.
While the relief allows a distribution immediately, plans have until on or before the last day of the first plan year on or after January 1, 2019 (January 1, 2021 if a governmental plan) to adopt an amendment allowing these provisions.
If you have any questions regarding the disaster area relief, please contact your Nyhart consultant.