By Joe Cicchinelli, IRA Technical Expert
Follow Me on Twitter: @JoeCiccEdSlott
We have spent a great deal of online real estate on the financial aftermath of Hurricane Sandy and the toll it took and continues to take on disaster relief efforts both structurally at shore points up and down the Jersey coast and into New York and financially on the tens of thousands who saw their homes, vehicles and personal belongings wash away with the "once-in-a-century" storm.
Several United States senators have taken another step in helping Hurricane Sandy victims. CLICK HERE to read our earlier coverage of the storm, and continue below for proposed tax relief for the hurricane victims.
As a result of the widespread damage in the Northeast from Hurricane Sandy, New York Senators Robert Menendez (D-NY) and Charles Schumer (D-NY) recently stated that they will introduce legislation that would expand the tax-related relief available to victims of Hurricane Sandy. Their proposed legislation would provide relief from the 10% early distribution penalty tax for distributions from IRAs and would likely mirror prior legislation that gave relief to victims of other storms and natural disasters.
For example, in the past, Congress enacted legislation that provided tax relief affecting IRAs and employer retirement plans for victims of hurricanes, tornadoes, and floods. This relief applied to victims in federally-declared (FEMA) disaster areas.
The prior legislation affected withdrawals from IRAs and were called Qualified Disaster Recovery Distributions. These were IRA distributions for specific disasters in specific areas. They were made to individuals who lived or worked in a disaster area or who suffered an economic loss as a result of the disaster. These distributions were limited to $100,000, taxable over three years instead of one, and were generally eligible for tax-free rollover within three years instead of 60 days.
In November 2012, the IRS provided help for Sandy victims. Some of the retirement plan initiatives the IRS announced included:
- Easing the rules to allow company retirement plans to make loans and hardship distributions to Sandy victims. This rule does not apply to IRAs.
- Postponing certain tax-related deadlines, such as the 60-day rollover period, the correction of excess contributions, etc. These postponements apply to IRA and company retirement plans.
Some of you have made charitable donations for Hurricane Sandy victims. If you use your IRA funds to do so, it is treated as a taxable distribution from your IRA. You can then claim a tax deduction if you itemize. Previously, qualified charitable distributions (QCDs) were available for IRA owners and beneficiaries who were age 70 ½ or older. QCDs were tax-free distributions from IRAs that were directly sent to a charity. Unfortunately, QCDs expired at the end of 2011. Congress has talked about renewing QCDs for 2012, but has not done so yet.
- New York Senators propose tax relief for victims of Hurricane Sandy
- Proposed legislation would waive the 10% early distribution penalty for IRA withdrawals and allow taxes to be paid over 3 years