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.