Relief for Victims of the Louisiana Floods: An Easing of Rules for Hardship Distributions and Loans from Employer Plans | Ed Slott and Company, LLC

Relief for Victims of the Louisiana Floods: An Easing of Rules for Hardship Distributions and Loans from Employer Plans

By Beverly DeVeny, Chief IRA Analyst
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On August 30, 2016 IRS released Announcement 2016-30 that allows for streamlining employer plan loan procedures and liberalizing hardship distribution rules for most employer plans. These procedures are in effect until January 17, 2017 for victims of the storms and flooding in Louisiana that began on August 11, 2016.

The loan or hardship distribution can be made to an employee or former employee whose principal place of residence or employment was located in the federally declared disaster area, or whose parents/grandparents, children/grandchildren, dependents, or spouse had a principal place of residence or employment in the federally declared disaster area.

You can find a list of the affected parishes on the IRS website here:

Distributions due to the Louisiana storms are considered an “unforeseeable emergency.” The amount available for a hardship distribution or a plan loan is not increased above the normal plan limits, but the distribution can be for any hardship due to the storms, not just those hardships normally allowed by the plan.

Plans that do not currently allow for hardship distributions or plan loans, can make those distributions to affected individuals and later amend their plans to allow those transactions. In addition, the plan administrator can ignore any plan requirements for paperwork or documentation in order to get the distributions out as quickly as possible to affected individuals. The requirements can be met after the fact. The six-month waiting period to make new contributions to the plan is also waived for affected individuals.

Spousal consent rules will continue to apply. Any hardship distribution made due to the Louisiana storms will be taxable to the plan participant and subject to the 10% early distribution penalty, if applicable. These procedures do not apply to IRA accounts.

Example: Lisa lives in Alaska, but her parents reside in Louisiana and have severe damage to their home. Lisa can take a hardship distribution or a plan loan under these rules and use the funds to help her parents. Lisa can continue to make contributions to her 401(k) plan.

Example: Danny lives and works in an affected area. He can take a hardship distribution or a plan loan under these rules and use the funds for food and shelter for himself and his family.

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