The IRS announced that it is allowing 401(k)s and similar employer-sponsored retirement plans to make loans and hardship distributions to victims of Hurricane Harvey and certain members of their families. IRA participants are not allowed to take out loans, but they may be eligible to receive distributions without penalty. In order to receive loans and/or hardship distributions, the employee and certain family members (child, parent, grandparent, or dependent) must live or work in disaster area localities affected by Hurricane Harvey and designated for individual assistance by the Federal Emergency Management Agency (FEMA).
To qualify for this relief, hardship withdrawals must be made by January 31, 2018. The IRS emphasized that the tax treatment of loans and distributions remains unchanged. Under current law, hardship distributions are generally taxable and subject to a 10% early withdrawal tax.
The rules surrounding retirement plan loans and hardship distributions can be complicated We recommend consulting with your tax advisor prior to making them.