Residents of Katrina disaster areas would benefit
Bipartisan legislation being rushed through Congress would waive the 10% penalty for early withdrawal of funds from IRA retirement plans for individuals living in a federally declared disaster area.
Both the House and Senate passed different versions of the bill by voice vote on Sept. 15. Those bills, H.B. 3768 and S.B. 1696, will now be reconciled. It is still likely that it will be on President Bush’s desk and signed by Sept. 23, industry lobbyists and congressional staffers said.
The provision is among a number of tax-abatement provisions contained in the bills.
The Internal Revenue Service also was expected to issue new guidance allowing workers to immediately take hardship withdrawal distributions or loans from their 401(k)-type plans, even where currently not allowable under the plan, according to officials of the American Society of Pension Professionals & Actuaries, Arlington, Va. The IRS guidance also would expedite loan requests by reducing the paperwork normally required to borrow from a 401(k)-type plan, according to ASPPA officials.
The ASPPA officials said they worked with the IRS and the congressional leadership to draft the program aimed at helping people dealing with the Hurricane Katrina catastrophe.
Such legislation was introduced on Sept. 12 in the Senate by senior members of the Senate Finance Committee, Sens. Charles Grassley, R-Iowa, and Max Baucus, D-Mont., and in the House late on Sept. 14.
ASPPA officials said the legislation and IRS guidance “would make it easier for victims of Hurricane Katrina to withdraw desperately needed cash from their retirement accounts.”
The House legislation was introduced by Rep. Jim McCrery, R-La., chairman of the Social Security Subcommittee of the House Ways and Means Committee.
Regarding withdrawals from retirement plans, the proposal would waive the 10% penalty tax for premature distributions from IRAs and qualified retirement plans (including defined benefit plans, 401(k) plans and 403(b) plans) for individuals.