The U.S. Treasury and Internal Revenue Service have issued guidance relating to provisions of the Katrina Emergency Tax Relief Act of 2005 that allow Hurricane Katrina victims to access employer-sponsored retirement plans and IRAs.
Under one provision of the bill, individuals who live in one of the four states affected by Hurricane Katrina, and who suffered an economic loss as a result of that hurricane, will receive favorable tax treatment on early distributions from eligible retirement plans.
Called a Katrina distribution, the money is not subject to the 10 percent additional tax applicable to early distributions from a retirement plan (or 25 percent, in the case of a Simple IRA), and is generally includible in income over a three-year period. In some cases, the distribution may be eligible for tax-free rollover treatment and could be contributed to an eligible retirement plan within a three-year period and not be included in income at all.
Another provision of the law increases the allowable plan loan amount from an employer-sponsored retirement plan and provides for a suspension of payments for plan loans outstanding on or after Aug. 25, 2005, that are made to Katrina victims.
More details are available at www.irs.gov.
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