In addition to the early withdrawal penalty waiver, Senator Charles Grassley (R-Iowa) and Max Baucus (D-Montana) also proposed loosening K plan loans including doubling the amount a participant could get to $100,000 or 100% of a participant’s account – whichever is less. Grassley is the chairman of the Senate Finance Committee while Baucus is the ranking minority member. I ndividuals whose principal residence is in a federally declared natural disaster area would qualify for the tax assistance.
According to a background summary posted on the Finance Committee’s Web site, individuals eligible for the waiver of the early withdrawal penalty because of Katrina would be allowed to pay income tax on such distributions over a three-year period. Also, amounts distributed could be recontributed to a qualified retirement plan over the three-year period following the distribution date and receive rollover treatment.
Distributions for home purchases which were not finalized because of Hurricane Katrina could also be re-contributed to a qualified retirement plan or IRA, according to the Finance Committee summary .
According to news reports, the Internal Revenue Service (IRS) is also expected to ease rules regulating K plan hardship withdrawals and loans and to make it easier for companies to amend their plans to allow for these types of distributions,
Also in the Grassley-Baucus bill is a provision excluding from gross income otherwise taxable Individual Retirement Account (IRA) withdrawals from a traditional or a Roth IRA for qualified charitable distributions. Under the provision, taxpayers who are 70Â½ and older would be allowed to rollover amounts from their IRA accounts directly to a qualified charitable organization on a tax-free basis.
“We need to get these tax incentives on the books and help Katrina victims make a fresh start,” the two lawmakers said in a statement. “Life will never be the same for our fellow citizens in the Gulf Region. And what we’ve all seen over the last two weeks will stay in the hearts and minds of all of us for years and years to come.”