Updated: Jun 16, 2022
IRS Announces Relief for Louisiana Flooding Victims Participating In Retirement Plans
Dear Clients & Friends,
Before we get into this week’s reading and news, we wanted to let everyone know that MOR Wealth Management will be volunteering for the National Multiple Sclerosis Foundation this weekend during the “Bike MS Ride to the Shore.” They expect over 7,000 cyclists, so I must assume that some of our MORWM family of clientele will be riding. Keep your eyes out for us. I’ll be wearing a volunteer shirt carrying a camera with a “ginormous” lens. Come say hi… Charity Ahoy!!
Now onto this weekend’s reading, where we want to point out a very helpful adjustment that the IRS has made to retirement plan withdrawals for Louisiana residents.
Given the recent devastation we’ve seen in Louisiana, the IRS has announced procedural changes which will make it easier for victims of the floods to obtain hardship withdrawals and loans from employer-sponsored retirement plans. The IRS indicated that by relaxing procedural and administrative rules that normally apply to retirement plan loans and hardship distributions, "plan participants will be able to access their money more quickly with a minimum of red tape." If you have family or friends experiencing hardship due to this recent flooding, please pass this letter along to them and we welcome their call in need.
The relief is generally available to employees and former employees (and certain members of their families) who live or work in specified parishes affected by the flooding.
Of particular note is that 401(k) and 403(b) plans will be able to rely on an employee's representation as to the need for, and the amount of, a hardship distribution, unless the plan administrator has actual knowledge to the contrary. In addition, the six-month ban on contributions that normally applies to plan participants who take hardship withdrawals will not apply.
This relief is available to hardship distributions resulting from the floods that are made on or after August 11, 2016, and no later than January 17, 2017.
Employer-sponsored retirement plans that may, but don't currently allow, hardship withdrawals or loans may make these options available immediately as long as the plan is amended to provide for them no later than the end of the first plan year beginning after December 31, 2016 (thus, calendar year plans must be amended no later than December 31, 2017).
We'll continue to pass along timely information relevant hereto. Again, if you have family or friends experiencing hardship due to this recent flooding, please pass this letter along to them and we welcome their call in need.
We wish everyone a lovely weekend. To read the corresponding IRS press release, please see below.
Relief for Victims of Louisiana Storms
IR-2016-115, Aug. 30, 2016
WASHINGTON —The Internal Revenue Service today announced that 401(k)s and similar employer-sponsored retirement plans can make loans and hardship distributions to Louisiana flood victims and members of their families.
Participants in 401(k) plans, employees of public schools and tax-exempt organizations with 403(b) tax-sheltered annuities, as well as 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.
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 Jan. 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 with a minimum of red tape. In addition, the six-month ban on 401(k) and 403(b) contributions that normally affects employees who take hardship distributions will not apply.
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. In addition, the plan can ignore the reasons that normally apply to hardship distributions, thus 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.
Further details are in Announcement 2016-30, posted today on IRS.gov. Data compiled herein curtesy of Broadridge Investor Communication Solutions, Inc.
Matthew Ramer, AIF® Principal, Financial Advisor MOR Wealth Management, LLC
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