Last week we wrote about the governor’s pledge of tax relief in the wake of Hurricane Irma. Even then, it was clear that no part of the state is untouched by the storm, making the promise of help all the more welcome.
Since then, the forms that help will take have become clearer. The IRS has waived normal penalties that could be imposed against operations that have to use less-than-ideal diesel fuel to keep their engines running. All of Georgia is eligible for disaster tax relief – aid that includes being able to tap into some retirement accounts to gain access to much needed cash.
The announcement means that 401(k) and similar employer-sponsored plans can more easily offer loans or hardship distributions to victims Family members in unaffected states who want to provide help to their suffering loved ones can benefit, as well.
It’s important to be aware that the IRS is not waiving the usual tax treatment of these distributions. Retirement plan loans won’t be taxed if repaid within five years. Hardship distributions may be subject to a 10-percent tax for early withdrawal. Those wishing to draw on Individual Retirement Accounts can’t make loans to themselves. But the IRS says they may be able to take distributions under relaxed procedures.
All this is obviously helpful. However, there are limitations on what can be done and taking advantage of the opportunities that exist must be done in full awareness of the IRS’s rules. A misstep in one of these transactions could later lead to disputes with the IRS. Having an experienced tax attorney at your side could prove crucial to avoid or later defend against IRS claims.