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Explore: IRS Providing Relief for Those Affected by Hurricane Harvey

IRS Providing Relief for Those Affected by Hurricane Harvey

Harvey

A recent decision by the Internal Revenue Service (IRS) has now allowed individuals who have been adversely affected by Hurricane Harvey to utilize the assets within their employer-sponsored plan(s) in order to address their financial needs. Similar to the relief provided to victims of past disasters such as Hurricane Sandy, employer-sponsored plans such as 401(k) plans are now permitting participants to make hardship withdrawals or borrow an amount up the limits stated in their retirement plan if they or certain family members have been impacted by the damage caused by Hurricane Harvey, regardless of whether or not the plan language has been amended to allow for such items. In addition, the IRS is easing procedural rules that typically apply to retirement plan loans and hardship distributions, which means that eligible individuals will now be able to access their retirement funds in a quicker fashion with less administrative requirements. Similarly, the IRS has removed the six-month restriction on 401(k) and 403(b) contributions following a hardship distribution.

While it is generally wise to avoid prematurely tapping into retirement funds, this relief provides some victims of Hurricane Harvey an additional means to assist them in their time of adversity. Family members are also permitted to request a loan or hardship distribution for the purpose of assisting their child, parent, grandparent, or other dependent who lived or worked in the impacted area. Note that in order to qualify for this relief, hardship distributions must be placed by January 31, 2018. Also, the IRS has stated that retirement plans can ignore the reasons that ordinarily apply to hardship distributions, which can allow individuals to utilize their retirement funds for matters such as food and shelter. However, it is important to note that the tax treatment of distributions and loans will still apply. Therefore, any hardship distribution an individual makes will be subject to income tax, as well as a 10% early-withdrawal tax if made before age 59 ½. Any loan that is requested will be tax-free so long as they are repaid within a five-year time frame.