Law News and Tips

Hurricane Relief from the IRS

Fred Vilbig - Wednesday, September 20, 2017

Hurricane Relief from the IRS

HURRICANE RELIEF FROM THE IRS

Fred L. Vilbig © 2017

     Retirement plans are designed for… well, retirement. You put tax-deferred income into the plan to grow tax deferred. Beginning at age 59 ½, you can start withdrawing plan assets and just pay the income tax on what you take out. The assets that remain in the plan continue to grow tax free. Beginning at age 70 ½, a plan beneficiary must begin taking out a minimum amount (the “required minimum distribution” or “RMD”) which is a pro rata amount based on the participants life expectancy.

     If a participant begins withdrawing money too soon, there is a 10% early withdrawal penalty. Some (but not all) plans allow participants to borrow funds, but there are restrictions. If the plan includes the required language, you can borrow up to the lesser of $50,000 or one half of the amount in the plan. You have to pay the loan back in five years in at least quarterly equal payments of principal and interest. Finally, the loan must be evidenced by a legally enforceable agreement.

     In two recent Announcements (Announcement 2017-11 and 2017-13), the IRS has loosened these requirements for victims of Hurricane Harvey in Hurricane Erma. People who live or work in one of the Texas or Florida counties identified by FEMA for individual assistance are eligible. The IRS wants employers to try to comply with the requirements, but they sympathize (a word rarely used in the context of the IRS) with the victims of the storms. Therefore, eligible individuals can access their retirement assets to make it through the storms and to rebuild.

     I recognize that St. Louis was not affected by the storms. However some readers may have family in these areas. If so, they may want to get in touch with them to let them know that they can contact their employers about accessing these retirement funds. Yes they will have to pay it back, but it is a source of funds during very difficult times.

 

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