Report: Katrina Victims May Get 401(k) Break

NEW YORK -- The Internal Revenue Service is expected to ease 401(k) restrictions this week to allow those affected by Hurricane Katrina to tap into their retirement funds without paying a penalty for early withdrawal, according to a published report.

Representatives of organizations involved in retirement issues told USA Today they expect such a move to be announced in the next few days. The IRS told the newspaper only that it is "looking for ways to provide as much help as possible to Katrina victims."

The retirement experts told the newspaper they expect Hurricane Katrina would be declared a hardship, a designation that would let those affected by the storm qualify for a hardship distribution from their retirement funds.

The experts also expect employers and plan providers could ease the rules on paperwork normally required to get a loan or hardship distribution from the funds, and that the companies that don't currently allow 401(k) loans or hardship distributions would start allowing those types of withdrawals.

The newspaper reports that Sens. Max Baucus, D-Mont., and Charles Grassley, R-Iowa, announced a bill Monday that would raise 401(k) loan limits and waive the 10 percent early-withdrawal penalty for people who have not yet reached age 59 ½.

-- NYSSCPA.org News Staff

Posted on 9/13/05