IRS announced they are waiving the 10% penalty for early hardship withdrawal from a retirement plan due to Hurricane Irma. Do funds in a Rollover IRA qualify for this?

[jflopez17]

I am in an area affected by Hurricane Irma in Florida.

[dmertz · Accepted solution]

The IRS didn't waive early-distribution penalties, but a new law makes qualified hurricane distributions from IRAs and qualified retirement plans exempt from early-distribution penalties.  HR 3823 was signed into law by the President on September 29, 2017, providing relief from section 72(t) penalties for qualified hurricane distributions.

https://www.congress.gov/bill/115th-congress/house-bill/3823

See Sec. 501 and 502.

[Opus 17]

It looks like you can withdraw up to $100,000 from qualified retirement plan if you are in a disaster area as declared by the president  for hurricanes Irma, Harvey, or Maria. The 10% penalty is excused and the income tax for the withdrawal is spread out over three years.  You also have three years if you want to re-contribute the money back into the IRA.  (The law doesn't address the issue of tax deductions for a re-contribution using the three-year rule if you already paid income tax in year one or two. The IRS is going to have to issue some new regulations to cover this law.)

The rule that if you have a qualified work plan like a 401(k) or 403B, where you cannot make a withdrawal while you are still employed, has not been changed. However, the loan rules have been eased.  You can borrow up to $100,000 instead of $50,000, the collateral requirement has been loosened, and there is a one year grace period before the five year repayment period starts.

 I don't know if these rules specifically apply to a rollover IRA, because the law mentions several different code sections of qualifying plans and I don't have the ability right now to look up the code sections.  However, I would assume that Congress wrote the law to cover all qualified retirement plans which would include rollover IRA's.

[Opus 17]

The IRS is going to have to release some interpretations and regulations for this new law. It's too early for that right now, but because of the three-year income averaging rule, it will have to be part of the next years tax software.

[SweetieJean]

There are also liberalized earned-income tax credit (EITC) and child tax credit (CTC) rules for hurricane victims
<a rel="nofollow" target="_blank" href="http://www.marketwatch.com/story/heres-how-hurricane-victims-can-get-tax-relief-2017-10-03">http://w...>

[dmertz]

There is no difference between a rollover IRA and any other traditional IRA.  The specialness of a 'rollover' IRA disappeared with changes to the tax code in 2002.  The new law applies equally to all types of IRAs owned by an individual.

[jcor958006]

SO I can not file my taxes because I keep getting this message from turbo tax " the Qualified Hurricane distribution box has been checked. Provisions for hurricane relief retirement distributions have not finalized by the IRS in time to be included in our program. You must obtain an update before you file your return." anyone know how to get an update?  I would assume since I used the website there would not be a need to update....

[dmertz]

The IRS has not yet updated its own forms for the purpose and the delay is dependent on the IRS completing its work.  Once the IRS completes the forms, the forms will be incorporated into TurboTax relatively soon thereafter.

[ftlaud1]

8915B Are withdrawals made in Jan-Feb 2018 exempt on my 2018 return ? Software says withdrawals made Sept 4 2017 through Jan 1 2019 ? Is that correct?  (IRMA)  I did not read any cutoff date on the IRS publication <a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-pdf/i8915b.pdf">https://www.irs.gov/pub/irs-pdf/i8915b.pdf</a>

[dmertz]

Yes, this is a qualified disaster distribution if you live in the Irma disaster area and suffered an economic loss because of Irma.  Since the distributions were made in 2018, they are reportable on your 2018 tax return with a 2018 Form 8915B.

[Opus 17]

Sorry, no they didn't.

The IRS is easing the rules on loans and hardship withdrawals from qualified employer plans like 401(k) and 403(b). However, such withdrawals are still subject to the 10% penalty.  https://www.irs.gov/newsroom/like-harvey-retirement-plans-can-make-loans-hardship-distributions-to-v...