IRS Eases Rules for Plan Loans, Hardship Distributions for Matthew Victims

By ASPPA Net Staff • October 21, 2016 • 0 Comments

The IRS on Oct. 21 said in Announcement 2016-39 that 401(k)s and similar employer-sponsored retirement plans can make loans and hardship distributions to victims of Hurricane Matthew and members of their families. The American Retirement Association had requested such relief in an Oct. 10 letter to the IRS.

The following may be eligible for the streamlined loan procedures and liberalized hardship distribution rules the IRS is allowing:

  • participants in 401(k) plans;

  • employees of public schools and tax-exempt organizations with 403(b) tax-sheltered annuities; and

  • state and local government employees with 457(b) deferred-compensation plans.

In addition, although 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 disaster area localities affected by Hurricane Matthew and designated for individual assistance by the Federal Emergency Management Agency (FEMA). At this time, parts of North Carolina, South Carolina, Georgia and Florida qualify for such assistance. A complete list of eligible counties is available here.

The relaxed procedural and administrative rules for retirement plan loans and hardship distributions are intended to make it faster for eligible retirement plan participants to access their money.

Under the announcement:

  • the six-month ban on 401(k) and 403(b) contributions that normally affects employees who take hardship distributions will not apply;

  • a retirement plan can allow a victim of Hurricane Matthew to take a hardship distribution or borrow up to the specified statutory limits from the his of her retirement plan;

  • 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;

  • a plan can ignore the reasons that normally apply to hardship distributions, thus allowing them, for example, to be used for food and shelter; and

  • a plan can relax any requirement it may have for certain documentation before a distribution is made.

To qualify for this relief, hardship withdrawals must be made by March 15, 2017.