This taxpayer relief, which allows a Sandy victim to take a hardship distribution or to borrow up to the statutory limits from their retirement plan, extends beyond just the participant. It also allows a person who lives outside the disaster area to take out a retirement plan loan or hardship distribution and use it to assist a spouse, son, daughter, parent, grandparent or other dependent who lived or worked in the disaster area.
Retirement plan loan proceeds are tax-free if they are repaid over a period of five years or less. Under current law, hardship distributions (except to the extent a distribution consists of already-taxed amounts) are generally taxable and a 10% early-withdrawal tax usually applies. Similar rules regarding IRA distributions relating to income inclusion and taxation apply.
The government is providing this immediate relief to all taxpayers that have been impacted by Hurricane Sandy. There have been several News Releases issued by the IRS for Victims of Hurricane Sandy, which can be found at http://www.irs.gov/uac/Newsroom/Help-for-Victims-of-Hurricane-Sandy. Any individual or business that has been impacted by this storm should seek out this site, as there are several IRS relief provisions available to you, including the extension of various tax return filing and tax payment deadlines. The impacted states are also offering various forms of relief. Be sure to contact your tax professional as soon as possible to learn what relief is available to you.
Sandra Napoleon-Hudson is the managing member of Sandra Napoleon-Hudson CPA LLC, based in Atlanta. Her expertise includes multi-state taxation for corporations, partnerships and individuals, business consulting, sports and entertainment taxation and IRS representation. As a former partner of a New York firm, she appeared frequently on television and in print media.
