The Internal Revenue Service is giving taxpayers affected by Hurricane Katrina and their advisors more information about how to get emergency cash from retirement plans.[@@]
The IRS gives that advice in Notice 2005-92, which deals with implementation of 2 emergency retirement fund access provisions of the Katrina Emergency Tax Relief Act of 2005.
One provision will let taxpayers who suffered an economic loss as a result of Hurricane Katrina withdraw retirement plan funds without paying the usual 10% additional tax imposed on early plan distributions.
Taxpayers who withdraw plan cash generally will have to include the withdrawals in taxable income, but they can spread the tax hit over a 3-year period, according to Pamela Kinard and Vernon Carter, the IRS tax-exempt entities specialists who wrote the notice.
Taxpayers who withdraw plan cash but put the money back within 3 years will not have to include the withdrawals in taxable income, Kinard and Carter write.
KETRA also lets Katrina survivors who belong to employer-sponsored retirement plans borrow up to $100,000 from the plans, up from the usual maximum limit of $50,000.
The new KETRA notice includes a number of specific, hypothetical examples about how to apply the emergency cash provisions.
The KETRA notice also frees employers involved in retirement fund withdrawals from having to take aggressive steps to determine whether employees really were affected by Katrina.
A plan sponsor or administrator "is permitted to rely on reasonable representations from a distributee with respect to the distributee's principal place of abode on Aug. 28, 2005, and whether the distributee suffered an economic loss by reason of Hurricane Katrina, unless the plan sponsor or plan administrator has actual knowledge to the contrary," Kinard and Carter write.
A copy of the notice is on the Web at
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