Disaster Relief, Minus 10%?
The IRS, Department of Labor and Pension Benefit Guaranty Corporation have granted a variety of forms of relief to certain victims of Hurricanes Harvey and Irma. But House Ways and Means Committee Chairman Kevin Brady (R-TX) may try to do what they cannot.
The agencies can — and have — granted relief
for regulatory and administrative rules in order to free up revenue to help victims recover. But they cannot change statutory provisions that impose penalties on some of the ways participants can access those funds. That’s where Brady may come in.
Current law provides that 401(k) participants can take a loan against their account, or take a hardship withdrawal from it, interest-free if it is paid back in five years or less. But after five years, the funds withdrawn or borrowed from a 401(k) are subject to federal income taxes as well as a 10% penalty.
Brady may propose changing that for victims of Harvey and Irma who have 401(k) plans. According to CNBC
, Brady is considering a proposal allowing them to access funds without incurring the penalties.
CNBC reports that Brady does not intend such added relief to be across the board, remarking to reporters that the measures to help storm victims would not be “boilerplate” and that they need to be tailored to communities and future circumstances.
The Katrina Emergency Tax Relief Act of 2005, which then-President Bush signed into law on Sept. 23, 2005, included a provision that exempted qualified victims of Hurricane Katrina from the 10% penalty on early distributions.