posted on September 8th 2017 in Austin CFP Team Posts with 0 Comments /

The IRS has just announced some relief for certain verification procedures for those needing to take hardship loans and distributions from their qualified retirement plans due to Hurricane Harvey. In IRS Announcement 2017-11, the IRS lays out the rationale and stipulations of the relief.

There are specific restraints on what can normally be deemed a hardship to take a loan from a qualified retirement plan ( not including IRAs). The announcement states that: “…a qualified employer plan will not be treated as failing to satisfy any requirement under the Code or regulations merely because the plan makes a loan, or a hardship distribution for a need arising from Hurricane Harvey, to an employee or former employee whose principal residence on August 23, 2017, was located in one of the Texas counties identified for individual assistance by the Federal Emergency Management Agency (“FEMA”).”

For those of you who don’t actually live in a county designated as a FEMA individual assistance area, but have relatives living in a qualified area, there is hope. If you have parents, children, grandchildren, dependents or a spouse who had a principal residence or place of employment in one of the FEMA-designated counties as of August 23, 2017, it appears the IRS announcement provides for relief for you to help them.

As of the date this article was written, the FEMA-designated counties for individual assistance are: Aransas, Bee, Brazoria, Calhoun, Chambers, Colorado, Fayette, Fort Bend, Galveston, Goliad, Hardin, Harris, Jackson, Jasper, Jefferson, Kleberg, Liberty, Matagorda, Montgomery, Newton, Nueces, Orange, Polk, Refugio, Sabine, San Jacinto, San Patricio, Tyler, Victoria, Walker, Waller, Wharton. https://www.fema.gov/disaster/4332#

A Checklist for Those Considering A Loan or Distribution

  • Confirm the loan or distribution is for someone (you or lineal relative) within one of the designated counties. Note that FEMA may amend this list from time to time.
  • Speak with your qualified retirement plan administrator to ensure:
  1. Your plan is a qualified plan as referenced in IRS Announcement 2017-11.
  2. Your plan allows for hardship loans and/or distributions. (If not, it will have to be amended.)

Note: Qualified plans do not include personal IRAs.

  • If you plan on withdrawing funds for a relative, ensure they are a “lineal” relative as defined in the announcement.
  • Remember the normal distribution/loan dollar amount limits still apply.
  • Before you commit to making the loan, find a financial advisor who has retirement planning software available to forecast how much risk you will be adding to your retirement plan.
  • Make plan loans or distributions no later than January 31, 2018.
  • Maintain excellent records to ensure appropriate payback to your qualified plan and for the IRS.

Disclaimer: WorthPointe does not provide tax advice; check with your CPA for any tax advice needs.

about the author: Morgan H. Smith Jr. IMBA CFP®

Morgan Smith Jr. IMBA, CFPMorgan H. Smith Jr. IMBA CFP, who has been a fee-only financial planner for over 12 years, specializes in wealth management for successful families, business owners, retirement plans and institutions requiring a disciplined fiduciary process.

An Assistant Professor at the University of San Diego, Morgan has been a frequent speaker to many professional organizations and has appeared on CNBC, Fox Business New Live and is a founding member of the Strategic Trusted Advisors Roundtable.

Learn More and/or Contact Morgan

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