Victims of the Louisiana floods in August can gain easier access to loans and hardship withdrawals from their defined contribution accounts, the IRS announced Aug. 30.
The IRS' relaxation of loan and hardship-withdrawal rules will allow “eligible retirement plan participants (to) be able to access their money more quickly with a minimum of red tape,” an IRS news release said, and also “the six-month ban on 401(k) and 403(b) contributions that normally affects employees who take hardship distributions will not apply.”
The relaxation of rules not only applies to participants in Louisiana but also plan participants outside the state who wish to take out loans and hardship withdrawals to assist family members affected by the flood.
“Plans will be allowed to make loans or hardship distributions before the plan is formally amended to provide for such features. In addition, the plan can ignore the reasons that normally apply to hardship distributions, thus allowing them, for example, to be used for food and shelter. If a plan requires certain documentation before a distribution is made, the plan can relax this requirement as described in the announcement,” the news release said.
However, the IRS is not waiving income tax or the additional 10% penalty for hardship withdrawals. Loan proceeds are tax-free if they are repaid over a period of five years or less.