The IRS has said that 401(k)s and similar employer-sponsored retirement plans can make loans and hardship distributions to Louisiana flood victims and members of their families.
Participants in 401(k) plans, employees of public schools and tax-exempt organizations with 403(b) tax-sheltered annuities and state and local government employees with 457(b) deferred-comp plans may be eligible for these loan procedures and hardship-distribution rules. IRA participants are barred from taking out loans, but they may be eligible to receive distributions under these looser procedures.
Retirement plans can provide this relief to employees and eligible family members who live or work in the disaster area. Hardship withdrawals must be made by January 17.
The IRS is also relaxing procedural and administrative rules that normally apply to retirement plan loans and hardship distributions. Eligible retirement plan participants will be able to access their money more quickly. The six-month ban on 401(k) and 403(b) contributions that normally affects employees who take hardship distributions will also not apply.
Plans will be allowed to make loans or hardship distributions before the plan is formally amended to provide for such features. In addition, the plan can ignore the reasons that normally apply to hardship distributions, thus allowing them, for example, to be used for food and shelter. If a plan requires certain documentation before a distribution is made, the plan can relax this requirement.
