Disaster Tax Relief: Early Pension Distribution?


Not many may remember... YOUR TAXES ARE DUE NEXT Monday, April 17th, 2018.

 Not many may realize... keep reading if you have an IRA, 401K or qualified pension plan, and are interested in getting up to a $100K early pension distribution or making yourself a repayable interest free loan... 

 EITHER of which is EXEMPT from the 10% to 25% early distribution penalty, and can be taxed as regular income spread over a THREE YEAR period. Hey Think McFly!!!

 FYI - For Federal Income Tax years 2016, 2017 and 2018...

 The following applies to 2016 Covered Disaster Areas AND 2017 Covered Disaster Areas such as Hurricane Harvey and Tropical Storm Harvey, Hurricane Irma, Hurricane Maria, the California wildfires, flooding and mudslides.

 REQUIREMENTS in the case of 2017 Covered Disaster Areas:

  1. The distribution was made after the disaster and BEFORE January 1, 2019.
  2. Your main home was located in a listed disaster area on the date or any date in the period shown for that area.
  3. You sustained an "economic loss" because of (example) Hurricane Harvey or Tropical Storm Harvey, Hurricane Irma, Hurricane Maria, or the California wildfires.

IMPORTANT KEY: Qualified 2017 disaster distributions are permitted WITHOUT regard to your NEED or the ACTUAL amount of your "economic loss". Read again and think McFly.

EXAMPLES of an economic loss include, but are NOT limited to:
  1. Loss, damage to, or destruction of real or personal property from fire, flooding, looting, vandalism, theft, wind, or other cause; (wet or smokey cat food, a tree branch fell or ash dust)
  2. Loss related to displacement from your home (drove away, night in hotel or at friends);
  3. Loss of livelihood due to temporary or permanent layoffs (work closed temporarily).
Refer back to that IMPORTANT KEY and #3 under requirements. This comes to mind...

Now Katy, bar the door...

 IRMA Example: If your main home was in LEE COUNTY, FLORIDA during IRMA on Sept 4th, 2017 and you have money in a qualified retirement plan which you would like to use as normal income today,  you can withdraw up to $100K from your qualified retirement plan.

 Benefit: You get to use the money today; AND a qualified distribution made after September 3, 2017, and before January 1, 2019; will be excluded from the 10% - 25% early distribution penalty.

 Taxation: Qualified 2017 disaster distributions are included in income in equal amounts over 3 years. However, if you elect, you can include the entire qualified 2017 disaster distribution in your income in the year it was received.

 Repayment: You can repay a qualified 2016 or 2017 disaster distribution made on account of a hardship from a retirement plan.

 Wildfires: A portion of the California wildfire disaster area has been designated by the IRS as a covered disaster area. The California wildfire covered disaster area covers Butte, Lake, Mendocino, Napa, Nevada, Orange, Solano, Sonoma, and Yuba counties.

 Flood and Mud: The California wildfires, flooding, mudflows, and debris flows covered disaster area has been designated by the IRS and covers Los Angeles, San Diego, Santa Barbara, and Ventura counties.

 IRMA: A portion of the Hurricane Irma disaster area has been designated by the IRS as a covered disaster area. The Hurricane Irma covered disaster area covers areas in the following territories and states; all 67 counties in Florida, all 159 counties in Georgia, etc.

 Recommended Reading:

 Read IRS Publication 976 for details and dates regarding your individual disaster situation, perform your due diligence and act accordingly.

 Disaster Tax Relief
About Form 8915
IRS Form 8915A
IRS Form 8915B

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