IRS says Sandy victims can tap retirement accounts
WASHINGTON (Reuters) - Cash-strapped victims of Superstorm Sandy will be able to tap their retirement accounts for hardship withdrawals and loans, the U.S. Internal Revenue Service announced on Friday.
Those with employer-provided plans, such as 401(k) plans, 403(b) plans and 457(b)deferred compensation plans, may be able to use streamlined loan procedures, the IRS said.
Those with individual retirement accounts (IRAs) may not take loans, but they may be able to take hardship withdrawals.
The IRS announcement is the latest in a string of relief measures from the tax agency, which has been deferring deadlines and easing other tax rules to help taxpayers struggling with home damage, loss of power and related troubles.
The IRS said it would trim red tape involved when account-holders try to tap retirement plans. That should help those needing cash quickly for home repairs or temporary housing.
Hardship withdrawals are typically narrowly defined, and aimed at items like funeral costs or medical expenses. But the IRS guidance says that in the case of Sandy withdrawals, they could be used for items like food and shelter as well.
The agency also said parents and other relatives who live outside the disaster area could tap retirement accounts for loans or withdrawals to help family members hurt by the storm.
People who wanted to take advantage of these fast track rules would have to make their withdrawals by February 1, 2013, the agency said.
Hardship distributions from tax-deferred accounts typically are subject to income taxes and a 10 percent early withdrawal penalty. In contrast, loans are tax free if repaid in five years or less.