The full Senate today is expected to vote on a tax-relief package that would permit Gulf Coast residents affected by Hurricane Katrina to take early withdrawals from defined benefit and defined contribution plans without paying the 10% early withdrawal penalty. A similar waiver would apply to early withdrawals from IRAs. Those who take early withdrawals would be able to pay the income tax on the withdrawals over three years instead of one year, and participants could return what they take out and receive preferential tax treatment on those contributions.
The legislation would also allow affected Gulf residents to borrow their 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 Max Baucus, D-Mont., the ranking Democrat on the committee. A vote had not taken place by press time.
The House of Representatives is scheduled to vote on its version of a hurricane tax-relief package Thursday.