People affected by Hurricane Sandy, or their close relatives, can tap qualified retirement plans without having to follow certain procedures for hardship withdrawals, the Internal Revenue Service said. Taxability rules will still apply.
The government announcement Friday allows administrators of 401(k) and other qualified plans to provide distributions even if plan documents don't include loan provisions, said IRS spokesman Eric Smith.
“The relief is designed to streamline the process by which plans can make distributions and still be qualified retirement plans, and to make it easier for people to get their money,” Mr. Smith said.
Like all hardship withdrawals, these are taxable and subject to a 10% early-withdrawal penalty.
The maximum distribution allowed is equal to the total available for a hardship distribution under the plan documents; the loans must occur by Feb. 1.
The qualified plans include 401(k)s, 403(b)s that public education and nonprofits offer workers, and 457(d) plans that government and certain nongovernment organizations qualify for through their employers.
The relief is aimed at anyone with a primary residence or place of employment in a covered disaster area. A relative of such a person affected by the storm that hit the New Jersey shoreline on Oct. 29 could withdraw from his or her retirement plan to help a spouse, parent, grandparent, child or other dependent who has been affected.
Individual retirement account holders can't take out loans, but their financial institutions may make IRA distributions under the relief, according to the IRS announcement, found here.