The Internal Revenue Service has approved additional tax relief measures for Louisiana residents hard-hit by recent flooding. The IRS previously pushed back tax deadlines for taxpayers in the parishes named in the federal disaster declaration. Now the agency says 401(k)s and similar employer-sponsored retirement plans can make loans and hardship distributions to flood victims and their families.
Participants in 401(k) plans, employees of public schools and tax-exempt organizations with 403(b) tax-sheltered annuities, and state and local government employees with 457(b) deferred-compensation plans may be eligible to take advantage of the streamlined loan procedures and hardship distribution rules.
Although IRA participants are barred from taking out loans, they may still be eligible for distributions under the liberalized procedures.
The IRS says it is also relaxing administrative rules, enabling retirement plan participants to access their money quicker and with less red tape. Also, the six-month ban on 401(k) and 403(b) contributions normally associated with hardship distributions will not apply.
The bottom line: A retirement plan can allow qualified Louisiana flood victims to take a hardship distribution or borrow up to the specified statutory limits from their retirement plan. It also means people who live outside the federal disaster area can take out a retirement plan loan or hardship distribution – and use it to assist a son, a daughter, parent, grandparent or other dependent who lived or worked in the disaster area.