IRS provides 401(k) tax relief due to Hurricane Harvey

The Internal Revenue Service on Wednesday announced it would provide relief to taxpayers adversely impacted by Hurricane Harvey by allowing use of 401(k) assets to address hardships caused by the storm and easing any associated tax rules. Distributions in the form of a loan or in the event of a hardship such as an unforeseeable emergency provide ways for retirement savers to tap assets they've accumulated in 401(k) plans, but typically come with specific rules, such as verification procedures. A plan must also contain language expressly authorizing such distributions. Qualified retirement plans won't be deemed to be out of compliance with tax rules when granting a loan or hardship distribution to an employee whose principal residence falls in a Texas county the Federal Emergency Management Agency identified for individual assistance due to devastation from the storm. The IRS provided similar relief to taxpayers and employers following Hurricane Sandy in 2012. Loans and hardship distributions are forms of plan "leakage" some view as detrimental to retirement savers. (More: Financial advisers in Harvey's path ride out the Texas storm) To qualify for relief from some of these rules, distributions must be made on account of a hardship caused by the storm, and must be made on or after Aug. 23, when weather forecasters posted a hurricane watch, and no later than Jan. 31, 2018. A plan that makes a loan or hardship distribution — and doesn't currently allow for one — must amend its documentation within one "plan year" beginning after December 31, 2017.