[StBernard] Retirement Distribution Relaxed Rules

[Westley Annis]

More information from the IRS regarding retirement distributions.  They
seem to be sensitive over the need for people to rebuild their lives using
whatever available funds they can get their hands on.  From my experience
this is a big step for the IRS.  I still recommend keeping vital records
of any distributions and how they are being used to minimize any confusion
during possible examinations over the next three "open" filing periods.


Dan Johnson, CPA



Retirement Plans Can Make Loans, Hardship Distributions to Katrina Victims

WASHINGTON - 401(k) s and similar employer-sponsored retirement plans can
make loans
and hardship distributions to victims of Hurricane Katrina and members of
their
families, the Internal Revenue Service announced today.

For the first time ever, the IRS and the Departments of the Treasury and
Labor are
providing broad-based relief to retirement plan participants affected by a
major
disaster.

"As in other areas, we are doing everything we can to help Hurricane
Katrina victims
rebuild their lives," said IRS Commissioner Mark W. Everson. "This relief
will make
it possible for people to get their retirement money more quickly with a
minimum of
red tape."

401(k) plan participants, employees of public schools and tax-exempt
organizations
with 403(b) tax-sheltered annuities, and state and local government
employees with
certain 457 deferred-compensation plans may be eligible to take advantage
of these
streamlined loan procedures and liberalized hardship distribution rules.
Though IRA
participants are barred from taking out loans, they may be eligible to
receive
distributions under liberalized procedures.

Retirement plans can provide this relief to employees and certain members
of their
families who live or work in the disaster area. To qualify for this
relief, hardship
withdrawals must be made by March 31, 2006.

The IRS is also relaxing procedural and administrative rules that normally
apply to
retirement plan loans and hardship distributions. As a result, eligible
retirement
plan participants will be able to access their money more quickly and with
a minimum
of red tape. In addition, the six-month ban on 401(k) contributions that
normally
affects employees who take hardship distributions will not apply.

This broad-based relief means that a retirement plan can allow a Katrina
victim to
take a hardship distribution or borrow up to the specified statutory
limits from
their retirement plan to repair or replace a home or for some other
purpose. It also
means that a person who lives in another part of the country can take out a
retirement plan loan or hardship distribution and use it to assist a son,
daughter,
parent, grandparent or other dependent who lived or worked in the disaster
area.

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
limits 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.

Ordinarily, retirement plan loan proceeds are tax-free if they are repaid
within
five years.  Under current law, hardship distributions are generally
taxable. Also,
a 10% early-withdrawal tax usually applies, but Congress is currently
considering
possible modifications to this tax.

More information about this relief can be found in IRS Announcement 2005-70.

Links:

  *  Announcement-2005-70, Hurricane Katrina Relief --
http://www.irs.gov/pub/irs-drop/a-05-70.pdf
  *  More Information on Hurricane Katrina-related Issues    --
http://www.irs.gov/newsroom/article/0,,id=147085,00.html