IRS Provides More Tax Relief For Hurricane Harvey Victims

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August 31, 2017

IRS Provides More Tax Relief For Hurricane Harvey Victims

The Internal Revenue System (IRS) has announced that it will be providing more tax relief for the people who are victims of Hurricane Harvey. This tax relief this time comes in the form of lifting hurdles that would stand in the way of people being able to take money out of their retirement funds. This "bend" in the rules will apply to all employer-sponsored plans including 401(k)s, 403(b)s, & 457(b) plans. This allows these people to remove money from their retirement accounts without having to go through the usual protocol to do so. The IRS is also relaxing their typical administrative and procedural protocol that one must go through to get the money out of their accounts so that they can access the money immediately when they need it most.

The IRS is treating Harvey as an "unforeseeable emergency", therefore is relaxing the rules a bit to allow people to take their money out of their retirement plans for necessities like clothing, food, and shelter while they are recovering from this catastrophe. These are not normally "hardships" that allow people to take money out of their retirement funds, but the IRS is making the exception for this six-month window to qualify this as a "hardship" so people can access their money. This relief comes in addition to that relief that individuals may be eligible for in certain areas affected by this disaster.

More information is available on what the "bend" in the rules allows through the IRS Announcement 2017-11. These rules will be in effect from August 23rd, 2017 through until January 31st, 2018. This relief comes in addition to the previous income and payroll tax relief that was already granted previously by the IRS to the Hurricane Harvey victims.

It is important to remember when taking your money out of retirement accounts that the spousal consent rules still apply, however, the 10% "early withdraw" penalty fees have been waived to allow people to take their money out of their retirement funds penalty-free in their time of dire need. The limit on the money that can be taken out is $50,000 or half of what you have invested in the account based on whichever amount is less.  

It is recommended that you take the money out as a loan if ta all possible. However, remember that the "loan" must be paid back within 5 years. There is also a limit on the money you can take out when you are using the money as a "loan". Those limits on the limit on the money that can be taken out are $50,000 or half of what you have invested in the account based on whichever amount is less.  

In addition, the rule that you cannot start putting money back into the account for at least 6 months after you withdrew money has also been suspended for people affected by Hurricane Harvey. This is vitally important, especially for those who are looking to help a relative or loved one with some of their vested funds while still contributing to the account for the security of their own futures.

As of right now these relaxed rules apply to the 21 counties who have been declared "disaster areas" in Texas including Aransas, Bee, Brazoria, Calhoun, Chambers, Colorado, Fayette, Fort Bend, Galveston, Goliad, Hardin, Harris, Jackson, Jasper, Jefferson, Kleberg, Liberty, Matagorda, Montgomery, Newton, Nueces, Orange, Refugio, Sabine, San Jacinto, San Patricio, Victoria, Waller, Wharton.

It is worth noting that this list will likely grow as the now Tropical Storm Harvey may still dump more rain on Texas and possibly Louisiana in the coming days and the magnitude of this disaster sets in. Be sure to check for updates to see if your area is added to the list of areas affected who are able to get their money out of their retirement funds.

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