The IRS has published additional guidance on hurricane-related tax relief, including provisions regarding distributions and loans from qualified retirement plans. [IR-2006-18; Publication 4492] The IRS has also published Form 8915, Qualified Hurricane Retirement Plan Distributions and Repayments, to be used by individuals claiming hurricane relief for eligible transactions.
A few observations beyond those made earlier here at BeneBlog 1/7/06 -
- A reduction or offset of a participant’s account balance in an eligible plan in order to repay a plan loan may be designated as a qualified hurricane distribution.
- For purposes of the usual IRA restriction of one rollover per year, repayment of a qualified hurricane distribution will not be counted.
- Although periodic benefit payments and required minimum distributions may be designated as qualified hurricane distributions, those distributions are not eligible for repayment.
- For married taxpayers filing joint returns, a separate Form 8915 should be filed for each person. The $100,000 limit applies separately, as does the election to recognize all income tax on distributions immediately versus with 3-year averaging.
The latest IRS publications have the individual taxpayer in mind and generally seem to presume either that the terms of the individual’s retirement plans will be accommodating or will be amended to be so. For instance, although it is noted that repayments can be made to a retirement plan that accepts rollovers, the nuances of what to do if your employer’s plan doesn’t accept rollovers are probably lost on the common taxpayer, as are the opportunities if you are now employed by a different company and are participating under a different retirement plan than the one from which the qualified hurricane distribution was received.
And the IRS publication’s desciption of the plan loan relief completely assumes that the individual’s retirement plan will reflect the revised loan limits and payment relief. Although plans with affected individual will no doubt give serious consideration to extending the relief, they are not required to do so. And whereas it is acknowledged and relevant that a plan’s characterization of a distribution may differ from an individual’s designation vis a vis qualified hurricane distributions, the plan’s terms would seem to govern on the issue of a plan loan. For instance, if an individual skips loan payments for a year due to the hurricane, the individual is going to face the distribution rules if the plan terms consider the loan in default, even if the IRS would have been prepared to grant relief under the hurricane provisions.