Gulf Coast residents affected by Hurricane Katrina would be able to take early withdrawals from defined benefit and defined contribution plans without paying the 10% early withdrawal penalty under a Senate bill introduced today. A similar waiver would apply to early IRA withdrawals. Those who take early withdrawals would be able to repay the tax over three years instead of one year. And participants who pay back what they withdraw from their pension and retirement plans would get a tax break on the contributions.
The legislation also would permit those in the area hit by the hurricane to borrow their entire retirement account balances, up to $100,000, from their employer-sponsored plans. Those who had already borrowed from their retirement plans would be eligible for a year's extension on the repayment.
The bill was introduced by Senate Finance Committee Chairman Charles E. Grassley, R-Iowa, and Sen. Max Baucus, D-Mont., the ranking Democrat on the committee.