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IRS Eases Louisiana Storm Victims' Access To Savings

by Mike Godfrey, Tax-News.com, Washington

31 August 2016


The United States Internal Revenue Service has announced that certain retirement plans can make loans and hardship distributions to Louisiana flood victims and members of their families.

The IRS said in Announcement 2016-30, issued on August 30, that 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 eligible to take advantage of these streamlined loan procedures and liberalized hardship distribution rules. Though IRA participants are barred from taking out loans, they may be eligible to receive distributions under liberalized procedures.

The agency confirmed that retirement plans can provide this relief to employees and certain members of their families who live or work in the disaster area. To qualify for this relief, hardship withdrawals must be made by January 17, 2017.

The IRS is also relaxing procedural and administrative rules that normally apply to retirement plan loans and hardship distributions. As a result, eligible retirement plan participants will be able to access their money more quickly. In addition, the six-month ban on 401(k) and 403(b) contributions that normally affects employees who take hardship distributions will not apply.

According to the IRS, this broad-based relief means that a retirement plan can allow a Louisiana flood victim to take a hardship distribution or borrow up to the specified statutory limits from the victim's retirement plan. It also means that a person who lives outside the disaster area can take out a retirement plan loan or hardship distribution and use it to assist a son, daughter, parent, grandparent, or other dependent who lived or worked in the disaster area.

Plans will be allowed to make loans or hardship distributions before the plan is formally amended to provide for such features, the agency said. In addition, the plan can ignore the reasons that may be used to justify hardship distributions, thereby allowing them, for example, to be used for food and shelter. If a plan requires certain documentation before a distribution is made, the plan can relax this requirement as described in the announcement.

Ordinarily, retirement plan loan proceeds are tax-free if they are repaid over a period of five years or less. Under current law, hardship distributions are generally taxable. Also, a 10 percent early-withdrawal tax usually applies.

The IRS has already granted filing and payment deadline extensions to Louisiana storm victims, and workers assisting the relief activities.

The tax relief postpones various tax filing and payment deadlines that occurred starting on August 11, 2016. As a result, affected individuals and businesses will have until January 17, 2017, to file returns and pay any taxes that were originally due during this period.

This includes the September 15 deadline for making quarterly estimated tax payments. For individual tax filers, it also includes 2015 income tax returns that received a tax-filing extension until October 17, 2016. The IRS noted, however, that because tax payments related to these 2015 returns were originally due on April 18, 2016, they are not eligible for this relief.

A variety of business tax deadlines are also affected, including the September 15 deadline for corporation and partnership returns on extension, and the October 31 deadline for quarterly payroll and excise tax returns.

The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area.

TAGS: individuals | tax | business | pensions | law | employees | retirement | payroll | food | United States

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