IRA

Tax Relief Announced for Individuals Impacted by Hurricanes Harvey, Irma, and Maria

October 31, 2017

The Internal Revenue Service, Department of Labor, and Congress have all acted swiftly to give temporary relief to victims of Hurricanes Harvey, Irma, and Maria.

The Internal Revenue Service (IRS), Department of Labor (DOL), and Congress have all acted swiftly to give temporary relief to victims of Hurricanes Harvey, Irma, and Maria. The relief comes in the form of special plan loan and hardship distribution options, in addition to an extension of many tax-related deadlines.

Because of the recent natural disasters that have hit the southern part of the country, the executive and legislative branches of government have responded with temporary relief for those affected. Individuals who have an IRA or employer-sponsored retirement plan account balance can consider taking distributions and/or loans to help rebuild their lives.

Each agency has released its own adaptation, as outlined below, with each communication complementing the next.


Relief for Victims of Hurricane Victims (IRS)

Who does it apply to?
Participants (past and present) in a qualifying retirement plan or IRA whose residence or place of employment is located in the officially declared disaster area by the Federal Emergency Management Agency (FEMA). If one lives outside the disaster area but has family members within these locations, the relief would also apply.

What is the temporary relief?
Loans and hardship distributions are not limited to the general safe-harbor hardship reasons AND the six-month suspension of deferrals will not apply. Only a "good faith diligent effort" to comply under the circumstances to the normal procedures is required of a retirement plan, with any forgone documentation collected as soon as practicable.

Expires: Relief for announcement 2017-11 expires January 31, 2018.
Source: IRS Announcement 2017-11


Employee Plans Impacted by Hurricane (DOL)

Who does it apply to?
Affected employee benefit plans with administrative procedures that have been disrupted where employers and service providers will act reasonably, prudently, and in the interest of employees to comply as soon as practically possible. A FAQ was also released for retirement-plan participants and beneficiaries.

What is the temporary relief?
Enforcement action will not be taken for:

  • Delay in deferral deposits and loan repayments.
  • Inability to give 30-day notice of a blackout period lasting more than three consecutive days.
  • Relaxing standards of verification procedures for plan loans and hardship distributions.
  • Late filing of certain time-sensitive tax-related acts and reporting requirements (i.e., filing of Form 5500).

Expires: Relief for news release 17-1216-NAT expires January 31, 2018.
Source: Department of Labor news release 17-1216-NAT


Disaster Tax Relief and Airport and Airway Extension Act of 2017 (H.R. 3823)

Who does it apply to?
Participants or beneficiaries of a qualified retirement plan or IRA who are victims of Hurricanes Harvey, Irma, and Maria. To be a "qualified hurricane distribution," the amount must be distributed on or after a date specified in the statute (which differs by hurricane) and before January 1, 2019.

What is the temporary relief?
Tax-favored withdrawals up to $100,000 with:

  • Exception to the 10% penalty for "qualified hurricane distributions."
  • Optional re-contribution (i.e., rollover) of a qualified hurricane distribution at any time over a three-year period from the date of distribution.
  • Any amount required to be included in income can be included ratably over the three-taxable-year period.

Loans taken before December 31, 2018:

  • Maximum amount to borrow is increased to the lesser of $100,000 or 100% of the vested balance (versus the usual maximum of the lesser of $50,000 or 50% of the vested balance).
  • Allows for longer repayment term of the loan by delaying the due date of the first payment by one year.

Expires: Relief for H.R. 3823 expires January 1, 2019.
Source: H.R. Bill 3823

Clients should always work with their tax advisors to determine if any relief is available to them under these temporary provisions.

 

If you have any additional questions regarding these changes, contact the Retirement Strategies Group at (800) 722-2333, ext. 3939, or send an e-mail to RSG@PacificLife.com.

Picture of Caroline Elrod

Caroline Elrod is a Retirement Strategies Consultant with the Retirement Solutions Division at Pacific Life. She brings several years of industry experience to her role that includes tax planning with insurance products. Caroline enjoys educating financial professionals on creative and practical solutions to business, estate and retirement planning concerns.

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