IRAs and Other Retirement Plans

New rules provide for tax-favored withdrawals, repayments, and loans from certain retirement plans for taxpayers who suffered economic losses as a result of Hurricane Katrina, Rita, or Wilma.

A qualified hurricane distribution is any distribution you received from an eligible retirement plan if all of the following apply.

1. The distribution was made:
   1. After August 24, 2005, and before January 1, 2007, for Hurricane Katrina;
   2. After September 22, 2005, and before January 1, 2007, for Hurricane Rita; or
   3. After October 22, 2005, and before January 1, 2007, for Hurricane Wilma.
2. Your main home was located in a hurricane disaster area listed below on the date shown for that area.
   1. August 28, 2005, for the Hurricane Katrina disaster area.
   2. September 23, 2005, for the Hurricane Rita disaster area.
   3. October 23, 2005, for the Hurricane Wilma disaster area.
3. You sustained an economic loss because of Hurricane Katrina, Rita, or Wilma and your main home was in that hurricane disaster area on the date shown in (2) above for that hurricane. Examples of an economic loss include, but are not limited to:
   1. Loss, damage to, or destruction of real or personal property from fire, flooding, looting, vandalism, theft, wind, or other cause;
   2. Loss related to displacement from your home; or
   3. Loss of livelihood due to temporary or permanent layoffs.

If (1) through (3) above apply, you can generally designate any distribution (including periodic payments and required minimum distributions) from an eligible retirement plan as a qualified hurricane distribution, regardless of whether the distribution was made on account of Hurricane Katrina, Rita, or Wilma. Qualified hurricane distributions are permitted without regard to your need or the actual amount of your economic loss.

The total of your qualified hurricane distributions from all plans is limited to $100,000. If you have distributions in excess of $100,000 from more than one type of plan, such as a 401(k) plan and an IRA, you may allocate the $100,000 limit among the plans any way you choose.

A reduction or offset (after August 24, 2005, for Katrina; after September 22, 2005, for Rita; or after October 22, 2005, for Wilma) of your account balance in an eligible retirement plan in order to repay a loan can also be designated as a qualified hurricane distribution.

An eligible retirement plan can be any of the following.

• A qualified pension, profit-sharing, or stock bonus plan (including a 401(k) plan).
• A qualified annuity plan.
• A tax-sheltered annuity contract.
• A governmental section 457 deferred compensation plan.
• A traditional, SEP, SIMPLE, or Roth IRA.

Generally, your main home is the home where you live most of the time. A temporary absence due to special circumstances, such as illness, education, business, military service, evacuation, or vacation, will not change your main home.

Qualified hurricane distributions are included in income in equal amounts over three years. However, if you elect, you can include the entire distribution in your income in the year it was received.

Qualified hurricane distributions are not subject to the additional 10% tax (or the additional 25% tax for certain distributions from SIMPLE IRAs) on early distributions from qualified retirement plans (including IRAs). However, any distributions you receive in excess of the $100,000 qualified hurricane distribution limit may be subject to the additional tax on early distributions.

For more information, see Form 8915.

If you choose, you generally can repay any portion of a qualified hurricane distribution that is eligible for tax-free rollover treatment to an eligible retirement plan. Also, you can repay a qualified hurricane distribution made on account of a hardship from a retirement plan. However, see Exceptions below for qualified hurricane distributions you cannot repay.

You have three years from the day after the date you received the distribution to make a repayment. Amounts that are repaid are treated as a qualified rollover and are not included in income. Also, for purposes of the one-rollover-per-year limitation for IRAs, a repayment to an IRA is not considered a qualified rollover. See Form 8915 for more information on how to report repayments.

You cannot repay the following types of distributions.

1. Qualified hurricane distributions received as a beneficiary (other than a surviving spouse).
2. Required minimum distributions.
3. Periodic payments (other than from an IRA) that are for:
   1. A period of 10 years or more,
   2. Your life or life expectancy, or
   3. The joint lives or joint life expectancies of you and your beneficiary.

If you received a qualified distribution to purchase or construct a main home in the Hurricane Katrina, Rita, or Wilma disaster area, you can repay that distribution before March 1, 2006, to an eligible retirement plan after August 24, 2005 (Katrina); after September 22, 2005 (Rita); or after October 22, 2005 (Wilma). For this purpose, an eligible retirement plan is any plan, annuity, or IRA to which a qualified rollover can be made.

To be a qualified distribution, the distribution must meet all of the following requirements.

1. The distribution is a hardship distribution from a 401(k) plan, a hardship distribution from a tax-sheltered annuity contract, or a qualified first-time homebuyer distribution from an IRA.
2. The distribution was received in 2005 after February 28 and before:
   1. August 29 for Hurricane Katrina;
   2. September 24 for Hurricane Rita; or
   3. October 24 for Hurricane Wilma.
3. The distribution was to be used to purchase or construct a main home in the Hurricane Katrina, Rita, or Wilma disaster area that was not purchased or constructed because of Hurricane Katrina, Rita, or Wilma.

Amounts that are repaid before March 1, 2006, are treated as a qualified rollover and are not included in income. Also, for purposes of the one-rollover-per-year limitation for IRAs, a repayment to an IRA is not considered a qualified rollover.

A qualified distribution not repaid before March 1, 2006, may be taxable for 2005 and subject to the additional 10% tax (or the additional 25% tax for certain SIMPLE IRAs) on early distributions.

You must file Form 8915 if you received a qualified distribution that you repaid, in whole or in part, before March 1, 2006.

The following benefits are available to qualified individuals.

• Increases to the limits for distributions treated as loans from employer plans.
• A 1-year suspension for payments due on plan loans.

You are a qualified individual if any of the following apply.

• Your main home on August 28, 2005, was located in the Hurricane Katrina disaster area and you had an economic loss because of Hurricane Katrina.
• Your main home on September 23, 2005, was located in the Hurricane Rita disaster area and you had an economic loss because of Hurricane Rita.
• Your main home on October 23, 2005, was located in the Hurricane Wilma disaster area and you had an economic loss because of Hurricane Wilma.

Examples of an economic loss include, but are not limited to:

• Loss, damage to, or destruction of real or personal property from fire, flooding, looting, vandalism, theft, wind, or other cause;
• Loss related to displacement from your home; or
• Loss of livelihood due to temporary or permanent layoffs.

The $50,000 limit for distributions treated as plan loans is increased to $100,000. In addition, the limit based on 50% of your vested accrued benefit is increased to 100% of that benefit. The higher limits apply only to loans received during the following period.

• If your main home was located in the Hurricane Katrina disaster area, the period began on September 24, 2005, and ends on December 31, 2006.
• If your main home was located in the Hurricane Rita or Wilma disaster area, the period began on December 21, 2005, and ends on December 31, 2006.

If you are a qualified individual based on Hurricane Katrina and another hurricane, use the period based on Hurricane Katrina.

Payments on plan loans due before 2007 may be suspended for 1 year by the plan administrator. To qualify for the suspension, the due date for any loan payment must occur during the period beginning on:

• August 25, 2005, if your main home was located in the Hurricane Katrina disaster area.
• September 23, 2005, if your main home was located in the Hurricane Rita disaster area.
• October 23, 2005, if your main home was located in the Hurricane Wilma disaster area.

If you are a qualified individual based on more than one hurricane, use the period with the earliest beginning date.