There’s a little bit of good news for survivors of hurricanes Harvey, Irma, and Maria. President Trump signed into law the Disaster Tax Relief and Airway Extension Act of 2017 on September 29. This provides relief provisions for the victims of these hurricanes, which are basically the same provided for victims of Hurricane Katrina in 2005.
Qualified Hurricane Distributions (I guess we can call these QHDs) are made from an eligible retirement plan to an individual whose primary residence is in one of the disaster areas during the specified dates and has suffered economic losses:
· Hurricane Harvey with distributions between August 23, 2017 and January 1, 2019
· Hurricane Irma with distributions between September 4, 2017 and January 1, 2019
· Hurricane Maria with distributions between September 16, 2017 and January 1, 2019
Each individual can withdraw a maximum of $100,000 per plan. This means a married couple can withdraw up to $200,000 from plans. IRAs, 401(k)s, and other retirement plans are eligible.
Once the distribution has been made, the individual has up to three years to repay the distribution. The repayments can be made into any retirement plan belonging to the individual as long as the initial distribution could have rolled over to that plan receiving the payment. For example, if you had a 401(k) at both your current employer and a previous employer, you could do a distribution from the previous employer’s 401(k) and repay it to your current employer’s 401(k).
Pre-tax funds withdrawn from qualified plans will be taxable, however they will not be subject to the 10% early distribution penalty. Also, there is no mandatory 20% withholding for qualified hurricane distributions.
For most people, a $100,000 distribution would be a significant taxable event. The new law helps by spreading the tax burden over three years. For example, if someone took $60,000 from their qualified plan, they would include $20,000 of income for 2017, $20,000 for 2018, and $25,000 for 2019. It is also possible to pay tax on the total amount in the year of the distribution.
If you have been affected by hurricanes Harvey, Irma, or Maria, the Disaster Tax Relief and Airway Extension Act of 2017 offers significant options for you to repair the damage to your home.