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401K Plans Affected by President Trump Signing "HR 1892"

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  • 401K Plans Affected by President Trump Signing "HR 1892"

    Remove six-month prohibition on 401k contributions after a hardship withdrawal: IRS will change its regulation to permit employees taking hardship distributions from a retirement plan to continue contributing to the plan. The new regulations will apply to plan years beginning after Dec. 31, 2018.

    Include QNECs, QMACs and profit-sharing contributions in a hardship withdrawal: Rules relating to hardship withdrawals from 401k plans are changed to permit employers to extend hardship distributions to amounts not permitted. It also would remove the requirement to take a loan before taking a hardship withdrawal. The regulation applies to plan years beginning after Dec. 31, 2018.

    IRS authority to release a levy on property held in retirement plans: The new law allows an individual to return the contribution to an IRA or employer-sponsored plan an amount withdrawn (and any interest thereon) pursuant to a levy and later returned to the individual by the IRS. Contributions are allowed without regard to the normally applicable limits on IRA contributions and rollovers. The regulation is effective for tax years beginning after Dec. 31, 2017.

    Relief from 10% early withdrawal penalty for participant use of retirement funds for California wildfire disaster: In general, the new law provides relief from the 10% early withdrawal penalty for qualified distributions up to $100,000 made on or between Oct. 8, 2017 and Jan. 1, 2019. A participant whose principal place of residence was in a California wildfire disaster area and who sustained an economic loss due to the wildfires can make a withdrawal.

    Distributions can be included in income proportionally over a three-year period beginning with the year of distribution, unless the individual elects not to have the proportional inclusion apply. Instead, amounts that are returned to the plan within the three-year period would be treated as a rollover and not includible in income. The new law also:
    • permits individuals to return funds to retirement plans if the funds were distributed anticipating a home purchase in a wildfire disaster area that was cancelled on account of the wildfires; and
    • Increases the limit and extends the repayment deadline for loans from retirement plans.
    Relief for loan default repayment upon participant or plan termination

    For a participant loan offset that otherwise would be taxed as a distribution, a participant whose employment ends (or plan terminates) with a loan outstanding will have until the due date, including extensions, for filing his or her tax return for the year to contribute the offset amount to an Individual Retirement Account or other eligible retirement plan to avoid the loan offset being taxed as a distribution.

    Such tax-free rollover treatment does NOT apply to any offset amount under a loan that has already been deemed to be taxed as a distribution under the Code (and reported on Form 1099-R) either because its terms did not comply with the Code or because it remained in default past the plan's default cure period. This opportunity is available for offsets after 2017.

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