Eased access to Retirement Funds: Normally, a loan from a qualified pension plan is treated as a taxable distribution unless the loan doesn’t exceed the lesser of (A) $50,000 or (B) half of the present value of the benefit under the plan.However, loans up to $10,000 are allowed even if it exceeds these mentioned limits. Finally, any loan is required to be repaid within 5-years.
This can cause more problems than simply being taxable since a distribution can cause a 10% penalty if taken before 59 and 1/2.
New law eases a number of rules to allow victims to make “Qualified Hurricane Distributions” from their retirement plan of up to $100,000 if made before Jan 1, 2019, and you sustained an economic loss from the hurricane. Even better, regardless of your age, the new law waives the 10% penalty for early distributions.
Also, the law allows taxpayers to spread out the taxable income to be recognized over a 3-year period. You can also re-contribute the amount distributed.
Any amounts distributed under this law is subject to a 20% withholding.
Finally, the law allows for the re-contribution of certain retirement plan withdrawals received before Sept 21, 2017, which was made for a home purchase or construction and where the purchase or construction was canceled on account of Hurricane Harvey, Irma or Maria.
Sandy’s elaboration: I don’t know why this law wasn’t made permanent for any disaster area and for any disaster and not just for specific hurricanes.
The final part of this series will be presented next time.
All content on this site is the property of Taxbot, LLC and/or Sandy Botkin. You may link to any article that you wish, or share via the social media buttons below. However, please do not copy articles or images for use on other sites without express written permission.