More On Tax Planningfrom The Advisor's Professional Library
- IRAs: In General Individual Retirement Accounts are highly popular tools for contributing funds that grow on a tax deferred basis. Depending on the type of IRA, the accumulation can be tax free.
- Annuities: Variable Annuities Annuities are hot. The tax rules vary with the circumstances. Advisors must be aware of these intricacies when discussing annuities with clients.
The IRS announced on Nov. 16 that Americans affected by Hurricane Sandy would be able to take advantage of relaxed rules regarding loans and hardship withdrawals from 401(k) and employer-sponsored plans.
Victims of the hurricane will be able to take a loan or hardship distribution up to the limit specified by their retirement plans. A person who lives outside the area affected by the hurricane may take a distribution or loan from their own plan if it’s being used to assist any child, parent, grandparent or other dependent who does live or work in the affected area.
Additionally, the IRS is relaxing administrative rules that will let participants taking hardship withdrawals access their money more quickly and with less paperwork. A plan may grant a distribution before receiving documents that would normally be required prior to approval, as long as the plan administrator makes a “reasonable effort” to obtain those documents as quickly as possible after the distribution is made.
The relaxed rules also waive post-distribution contribution rules that banned 401(k) or 403(b) participants from making contributions in the six-month period after a distribution. Distributions may be used for any type of hardship, not just those listed in plan regulations.
Furthermore, plans that don’t normally allow hardship withdrawals may do so for hurricane victims, even before the plans are amended, but plans must be amended before the end of the first plan year after Dec. 31, 2012.
The amended rules will apply to withdrawals made after Oct. 26 and before Feb. 1, 2013. They affect participants in 401(k)s, 403(b) plans with tax-sheltered annuities and 457(b) deferred-compensation plans. IRA owners will not be able to take advantage of the relaxed rules for loans, but may be able to take hardship withdrawals under the relaxed rules.
The IRS outlined the relief in detail in Announcement 2012-44.
The relaxed rules apply to participants and family members who live or work in areas identified by the Federal Emergency Management Agency as disaster areas, including:
- Connecticut: Fairfield, Middlesex, New Haven and New London counties; Mashantucket Pequot and Mohegan Tribal Nations
- New Jersey: Atlantic, Bergen, Burlington, Camden, Cape May, Cumberland, Essex, Gloucester, Hudson, Hunterdon, Mercer, Middlesex, Monmouth, Morris, Ocean, Passaic, Salem, Somerset, Sussex, Union and Warren
- New York: Bronx, Kings, Nassau, New York, Orange, Putnam, Queens, Richmond, Rockland, Sullivan, Suffolk, Ulster and Westchester
- Rhode Island: Newport and Washington counties