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IRS, Congress Move to Help Storm Victims Tap Savings

Some propose to waive the penalty for early withdrawals from 401(k)s

Savings Withdrawal Fee Waived

Mic Smith/AP Images

Hardship withdrawals for disaster victims must be made by Jan. 31.

En español |  The IRS is temporarily making it easier for storm victims to take loans against their retirement savings accounts. And some members of Congress are moving to waive the 10-percent penalty for early withdrawals from these accounts to help pay recovery costs in ravaged regions.

IRS officials say they want to streamline the loan process and make it easier for victims and their families to take and distribute hardship withdrawals from retirement savings. Some procedural and administrative rules will be relaxed. “As a result, eligible retirement plan participants will be able to access their money more quickly with a minimum of red tape,” the agency said.

Under the relaxed rules, hardship withdrawals must be made by Jan. 31, 2018. Someone who lives outside the disaster area can take out a retirement savings plan loan or hardship distribution to assist a son, daughter, parent or grandparent who resides or works in the disaster area.

But the usual 10-percent penalty for early withdrawals before age 59 and a half still applies, and savers must still pay income taxes on the withdrawn money.

Some in Congress, meanwhile, propose to waive the 10-percent penalty.

That includes Kevin Brady (R-Texas), chairman of the House Ways and Means Committee, who is drafting legislation intended to help victims of hurricanes Harvey and Irma. "It will include tax provisions, some of which will help people access their retirement funds without penalty for rebuilding activities," Brady told reporters.

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