Congress has passed legislation allowing participants in qualified defined contribution (DC) plans, including individual retirement accounts (IRAs), to get a distribution of up to $100,000, in aggregate, across all accounts and avoid tax penalties.
According to the bill, individuals who receive such distributions are allowed to pay them back within a three-year period, and the repayments are treated as rollovers to qualified employer-sponsored DC plans. Distributions are not subject to the 20% mandatory federal tax requirement or the 10% early withdrawal tax requirement. Participants may choose to pay all taxes on the distributions at once or spread the distributions as income for tax purposes over a three-year period.
A qualified hurricane distribution includes distributions taken after August 23 and before January 1, 2019, for victims of Hurricane Harvey. They include distributions taken after September 4 and before January 1, 2019, for victims of Hurricane Irma, and distributions taken after September 16 and prior to January 1, 2019, for victims of Hurricane Maria. The plan sponsor must decide if it will allow qualified hurricane distributions, and a plan amendment may be required.
The bill also increased the amount that qualified persons may take as a loan from their retirement plan accounts to $100,000, and the limit of 50% of the participant’s account balance does not apply. In addition, the start of loan repayments may be deferred for one year, and the maximum five-year loan amortization period for non-mortgage loans may be extended for one year.
Text of the bill is here.
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