Hurricane Harvey survivors are now eligible to take loans and hardship distributions from 401(k) plans and similar types of retirement accounts, due to relaxed IRS rules. Retirees who haven’t received their scheduled Social Security payments also have several options to pick up their checks. Here’s how your retirement savings can be used to help cope with the costs of the storm.
[See: 10 Ways to Avoid the IRA Early Withdrawal Penalty.]
401(k) and IRA hardship distributions. Retirement savers in Texas who were impacted by the storm will be allowed to take hardship distributions from 401(k) plans, 403(b)s and 457(b) plans between August 23, 2017 and January 31, 2018. The IRS relaxed the rules that normally apply to hardship distributions to allow them be used for additional hardship costs including food and shelter and with fewer administrative requirements. IRA participants may also be allowed to take hardship withdrawals for a need arising from Hurricane Harvey under the new relaxed distribution rules.
The usual six-month ban on new 401(k) and 403(b) contributions after a hardship withdrawal will not apply to people who use their retirement savings to pay for storm-related expenses, which makes it easier to replenish the retirement account when you are able to begin saving again. However, income tax will continue to be due on 401(k) and IRA distributions taken in the aftermath of the storm. Those who are under age 59 1/2 will have to pay an additional 10 percent early withdrawal penalty on their early distribution. A 50-year-old worker in the 25 percent tax bracket who takes a $5,000 hardship distribution will owe $1,750 in taxes and penalties on the withdrawal.
[See: 5 New 401(k) and IRA Rules for 2017.]
401(k) loans. 401(k) participants will be allowed to borrow up to 50 percent of their vested account balance up to a maximum of $50,000 to pay for storm recovery expenses. Retirement account loans are generally tax-free if they are paid back within five years. However, 401(k) loans often charge origination, administration and maintenance fees. Loans that are not repaid on time are considered to be withdrawals, and taxes and penalties could be applied to the outstanding loan balance. If you lose or leave the job associated with your 401(k) plan, the loan balance could become due immediately. IRA participants are not allowed to take loans from the account for any reason.
Help a family member in need. Retirement savers who live outside the disaster area can also take a retirement account loan or hardship distribution to assist a son, daughter, parent, grandparent or other dependent who lives or works in the disaster area. Income tax and early withdrawal penalties will continue to be applied to withdrawals used to help storm victims.
Emergency Social Security checks. The Social Security Administration has several options for retirees in the storm area who need their Social Security payments. The SSA expects little disruption in payments issued via direct deposit. Benefits will also be sent to Direct Express cards as scheduled, and fees for using the card will be waived for those who reside in the affected areas, even if they have evacuated the area. Paper checks will be delayed due to the temporary suspension of mail delivery service in some parts of Texas. However, the SSA has set up three emergency payment locations in Texas where Social Security and Supplemental Security Income beneficiaries who didn’t receive their regular benefit can request an immediate payment in person: the NRG Center in Houston, the Kay Bailey Hutchison Dallas Convention Center and the Tony Burger Center in Austin. Retirees impacted by Hurricane Harvey can also go to any open Social Security office and request an immediate payment that is due to them.
[See: 10 Ways to Increase Your Social Security Payments.]
Rule changes to allow faster access to Social Security and retirement savings for emergencies are common following natural disasters. The IRS provided similar access to retirement accounts for Louisiana flood victims in the aftermath of Hurricane Matthew in 2016 and New Jersey and other coastal residents after Hurricane Sandy in 2012.
Emily Brandon is the author of “Pensionless: The 10-Step Solution for a Stress-Free Retirement.”
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Hurricane Harvey Victims Eligible for Emergency Retirement Withdrawals originally appeared on usnews.com
