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Congress acts to provide relief to victims of Hurricanes Harvey, Irma and Maria

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Much like the Katrina Emergency Tax Relief Act of 2005 and relief for victims of Hurricane Matthew last year, Congress, the Internal Revenue Service (IRS) and other entities are providing relief to victims of recent disasters. Congress recently passed the Disaster Tax Relief and Airport and Airway Extension Act of 2017, or H.R. 3823, with some provisions to assist residents in several Gulf Coast states and U.S. Caribbean territories affected by Hurricanes Harvey, Irma and Maria.

The new law allows qualified hurricane distributions from retirement accounts without penalty as well as loan relief for plan participants.

The provisions allow “qualified hurricane distributions” from various retirement plans, including IRAs and qualified retirement plans (plan permitting). These distributions are only for individuals in certain locations and must be taken before specific deadlines, as described below:

  • Hurricane Harvey victims – qualified distributions taken by Texas residents after August 23, 2017
  • Hurricane Irma victims – qualified distributions taken by residents of Florida (including the Seminole Tribe of Florida), Georgia, Puerto Rico and the U.S. Virgin Islands after September 4, 2017
  • Hurricane Maria victims – qualified distributions taken by residents of Puerto Rico and the U.S. Virgin Islands after September 16, 2017

For each of the above, distributions must be taken before January 1, 2019, to be considered a qualified hurricane distribution.

Under this new legislation, a qualified individual is allowed to

  • avoid the 10 percent early distribution penalty;Hurricanes
  • avoid the mandatory 20% withholding on distributions from applicable plans;
  • withdraw up to $100,000 (aggregated across all qualifying retirement plans);
  • elect to pay taxes on the distribution equally over three years, beginning in the tax year of distribution, or pay all taxes in the current year;
  • roll over the qualified distribution into an eligible plan, within three years starting on the day after receiving the distribution; and
  • repay hardship distributions (by February 28, 2018) for purchase or construction of a principal residence taken after August 23, 2017, if the purchase or building was canceled due to a hurricane.

As a result of the withdrawal amount increase, employer plans may relax loan limitations to residents living in hurricane-affected areas. Likewise, plan loan payments from qualified individuals may be delayed (up to one year) and the maximum five-year amortization period for non-mortgaged loans is also extended by one year. If document amendment is required, employer plans may retroactively amend to include these new features by the last day of the 2019 plan year.

The IRS may release further guidance on the above so taxpayers and plan administrators may best interpret the new legislation. Be sure to stay up to date via the agency’s Newsroom page for any critical updates.