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New Tax Laws for easy access to Retirement money

Posted on: 10th Feb, 2006 12:15 am
The Internal Revenue Service has issued new tax rules for the benefit of taxpayers who have suffered from the disaster of the hurricanes in the United States last year. In order to compensate for post-hurricane expenses, individuals can now withdraw cash from their retirement accounts without the usual early distribution penalty. Victims of hurricanes like Katrina, Rita as well as Wilma can avail this option.

Eligible taxpayers can withdraw up to an amount of $100,000 from all retirement plan accounts, annuities or IRAs. These account holders will have to pay taxes due on the distributions of tax-deferred money and earnings. But no one below 59 and 1/2 years of age taking out the cash will have to pay the 10% penalty. Such account holders can also pay off the early distributions through a qualified plan in 3 years.

In this case, they will have to file an amended return at the time of repaying the retirement amount. The account holders will also get back the taxes they have paid. But if they fail to repay the amount, they can pay the taxes on the distribution over a 3 year period instead of making all payments this year itself.

The date for such penalty-free distributions varies with the hurricane that necessitated the withdrawal of the funds. But hurricane victims can avail the benefits of the new law only till the end of 2006.
I would like to add that KETRA has given relief to plan participants having outstanding loans from a retirement plan.

As a rule these loans were to be paid off within five years in level installments. But KETRA has postponed the payment by a year to those who has dues before January 1, 2007. The consequent loan repayments will be adjusted to show the one one-year delay.

Thanks,
Douglas
Posted on: 10th Feb, 2006 09:57 am
These benefits are a welcome relief to the victims of the worst disaster in U.S. history. As per the new rule, people who withdrew money for the first time to purchase home from an IRA or other hardship distribution to purchase home from a 401(k) or 403(b) plan, within 1st. March and August 29, 2005 but couldn't succeed to build the house or buy it because of Katrina may be able to pay back the money to the IRA or plans by 28th. February, 2006. They won’t face any penalty.
Posted on: 10th Feb, 2006 10:19 am
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