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Hurricane Sandy Relief FAQs – Retirement Plan Loans & Distributions
- Are Sandy-related hardship distributions from qualified plans and IRAs includible in gross income?
Yes, these distributions are includible in gross income except to the extent they consist of already-taxed amounts or qualified distributions from designated Roth accounts or Roth IRAs.
- Does the 10% additional tax on early withdrawals apply to Sandy-related hardship distributions?
Yes, the 10% additional tax under Internal Revenue Code Section 72(t) applies to Sandy-related hardship distributions unless it is eligible for an exception to the tax. See the chart of exceptions to the 10% additional tax.
- Is a plan participant required to obtain a plan loan before requesting a Sandy-related hardship distribution from a qualified plan?
It depends on plan terms. A plan is not required to add loan provisions in order to make Sandy-related hardship distributions. Generally, a participant must take available plan loans before being eligible for a hardship distribution of elective deferrals from a 401(k) plan, but if requiring such loans would be impractical under the circumstances, Sandy-related hardship distributions may be made from the plan between October 26, 2012, and February 1, 2013, without requiring such loans.
- Can an individual take Sandy-related hardship distributions from a traditional or Roth IRA?
Generally, an individual can take withdrawals from a traditional or Roth IRA at any time and for any purpose. A withdrawal from an IRA is includible in gross income except to the extent it consists of already-taxed amounts or is a qualified distribution from a Roth IRA. The 10% additional tax on early withdrawals may also apply unless an exception to the tax is available.
- Which locations qualify for the Hurricane Sandy relief in Announcement 2012-44?
See Help for Victims of Hurricane Sandy for a list of counties and Tribal Nations eligible for relief.
- Are there any special reporting requirements for Sandy-related hardship distributions?
No, there are no special distribution codes for Sandy-related distributions.
- For a plan that already provides for loans and hardships and wants to take advantage of the relief outlined in Announcement 2012-44, will the plan sponsor need to amend the plan?
No, a plan that currently provides for loans and hardship distributions does not need to adopt an amendment in order to make Sandy-related loans or distributions under Announcement 2012-44.
- Can an individual who is taking substantially equal periodic payments (SEPPs) from an IRA take additional amounts from the same IRA to cover Sandy-related expenses without being subject to the 10% additional tax?
No. The additional amount is subject to the 10% additional tax unless an exception applies. Also, if the individual is under 59½ or has not been receiving the SEPPs for 5 years, the 10% additional tax will apply to all the SEPPs already taken from the IRA (unless the individual has died or become disabled).
Page Last Reviewed or Updated: 30-Nov-2012