In Retirement News For Employers (Fall 2012 Edition, December 13, 2012), the Internal Revenue Service (the "IRS") provides additional guidance on retirement plan loans and hardship distributions that may be made as Hurricane Sandy relief. This guidance helps explain the relief found in IRS Announcement 2012-44. Some of the points made in the Retirement News are:
--Sandy-related hardship distributions from qualified plans and IRAs 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.
--The 10% additional tax under Internal Revenue Code Section 72(t) applies to a Sandy-related hardship distribution, unless it is eligible for an exception to the tax.
--Whether or not a plan participant is required to obtain a plan loan before requesting a Sandy-related hardship distribution from a qualified plan depends on the plan's 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. However, 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.
--There are no special reporting requirements (i.e., special distribution codes) for Sandy-related hardship distributions.
--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.
The IRS has also issued a chart which contains the rules for retirement plan loans and distributions for Hurricane Sandy relief.