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STA Wealth Management is given updates like this since we have an Elite IRA Advisor with Ed Slott & Co. on staff, Scott Bishop.
On September 29, President Trump signed into law the Disaster Tax Relief and Airport and Airway Extension Act of 2017. This Act provides several retirement plan-related relief provisions for victims of Hurricanes Harvey, Irma and Maria. These provisions are essentially the same as relief provided for victims of Hurricane Katrina in 2005.
Qualified Hurricane Distributions
A qualified hurricane distribution is one that is made from an eligible retirement plan to an individual whose primary place of abode is in the disaster area on the effective date and has suffered an economic loss due to:
The qualified distributions are capped at $100,000 per individual. A married couple could each take $100,000 from their own retirement plans. Eligible retirement plans include both IRAs and employer plans.
Amounts distributed as qualified hurricane distributions can be repaid within a three-year period which begins with the date of the distribution. The repayments can be made with a series of contributions as long as the total of the contributions does not exceed the total of the distributions. The repayments can go into any retirement plan of the individual as long as the initial distribution could have been rolled over to the plan receiving the repayment.
Repayments are treated as direct rollovers that are received within 60 days of the distribution. This is an important distinction, as it makes the one-per-year rollover rule for IRA and Roth IRA rollovers a non-issue.
Taxation of Qualified Hurricane Distributions
All distributions of pre-tax funds will be taxable. They will not be subject to the 10% early distribution penalty. Distributions from employer plans will not be subject to the 20% mandatory withholding rules.
An individual can take up to $100,000 as a qualified hurricane distribution. That would create a significant tax hit for a hurricane victim. This legislation provides some relief by allowing an individual to include the income on their tax return ratably over a three-year period beginning with the year of the distribution. An individual who takes a distribution of $75,000 in 2017 would include $25,000 in income for 2017, $25,000 for 2018 and $25,000 for 2019. An individual can elect to include the total amount in income for the year of the distribution.
Repayments of Some Other Distributions
A hardship distribution taken from an employer plan after February 28, 2017 and before September 21, 2017 that was to be used for the purchase or construction of a principal residence that was not purchased or constructed can be repaid between August 23, 2017 and February 28, 2018. The dates in this provision apply for all three hurricanes.
Plan Loan Provisions
The plan loan limit is increased to $100,000 for a qualified individual beginning on September 29, 2017 and ending on December 31, 2018. Plan loan payments and the five-year plan loan period can be adjusted for qualified individuals.
There are several other employer plan provisions included in the Act.
Net disaster loss and personal casualty loss provisions have been modified for hurricane victims.
For more information on the relief available to clients in the hurricane disaster areas outlined in this alert, see the November issue of Ed Slott’s IRA Advisor newsletter, which will be released in the fourth week of October.
Net disaster loss and personal casualty loss provisions have been modified for hurricane victims (such as discussed in this Accounting Today Article).
Financial Planning and Investment Advice offered through STA Wealth Management (STA), a registered investment advisor.
STA does not provide tax or legal advice and the information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters or legal issues, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.
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