The Internal Revenue Service has announced that 401(k)-type retirement plans can make loans and hardship distributions to victims of Hurricane Sandy and members of their families under a more liberalized process.
This relief means that retirement plans can allow Hurricane Sandy victims to take a hardship distribution or borrow up to the specified statutory limits from the victim’s retirement plan. It also means that people who live outside the disaster area can take out a retirement plan loan or hardship distribution and use it to assist a son, daughter, parent, grandparent or other dependent who lived or worked in the disaster area.
Under the relaxed rules, the plan can ignore the limits that normally apply to hardship distributions allowing them to be used for things like food and shelter. If a plan requires certain documentation before a distribution is made, the plan can relax this requirement. In addition, the six-month ban on employee contributions that normally affects employees who take hardship distributions will not apply. To qualify for this relief, hardship withdrawals must be made by February 1, 2013.
Plans will be allowed to make loans or hardship distributions before the plan is formally amended to provide for such features. To make a loan or hardship distribution, a plan that does not provide for them must be amended to provide for loans or hardship distributions no later than the end of the first plan year beginning after December 31, 2012.
The IRS announcement can be found at: http://www.irs.gov/pub/irs-drop/a-12-44.pdf.