New rules provide for tax-favored withdrawals, repayments, and loans from certain retirement plans for taxpayers who suffered economic losses as a result of the storms and tornadoes that began on May 4, 2007.
If you received a qualified recovery assistance distribution, it is taxable, but is not subject to the 10% additional tax on early distributions. The taxable amount is figured in the same manner as other IRA distributions. However, the distribution is included in income over 3 years unless you elect to report the entire amount in the year of distribution. You can repay the distribution and not be taxed on the distribution. See Qualified Recovery Assistance Distributions, later.
The 2006 Form 8915, Qualified Hurricane Retirement Plan Distributions and Repayments, is modified and used to report qualified recovery assistance distributions and repayments. For information on other tax provisions related to the storms and tornadoes that began on May 4, 2007, see Publication 4492-A, Information for Taxpayers Affected By the May 4, 2007, Kansas Storms and Tornadoes.taxmap/pubs/p590-025.htm#en_us_publink1000136417
A qualified recovery assistance distribution is any distribution you received and designated as such from an eligible retirement plan if all of the following apply.
- The distribution was made after May 3, 2007, and before January 1, 2009.
- Your main home was located in the Kansas disaster area on May 4, 2007.
- You sustained an economic loss because of the storms and tornadoes. 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.
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 recovery assistance distribution, regardless of whether the distribution was made on account of the storms or tornadoes. Qualified recovery assistance distributions are permitted without regard to your need or the actual amount of your economic loss.
The total of your qualified recovery assistance 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 can allocate the $100,000 limit among the plans any way you choose.
A reduction or offset after May 3, 2007, of your account balance in an eligible retirement plan in order to repay a loan can also be designated as a qualified recovery assistance distribution.taxmap/pubs/p590-025.htm#en_us_publink1000136418
The Kansas disaster area covers the Kansas counties of Barton, Clay, Cloud, Comanche, Dickinson, Edwards, Ellsworth, Kiowa, Leavenworth, Lyon, McPherson, Osage, Osborne, Ottawa, Phillips, Pottawatomie, Pratt, Reno, Rice, Riley, Saline, Shawnee, Smith, and Stafford.taxmap/pubs/p590-025.htm#en_us_publink1000136419
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.
Qualified recovery assistance distributions are included in income in equal amounts over three years. However, you can elect to include the entire distribution in your income in the year it was received.
Qualified recovery assistance 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 recovery assistance distribution limit may be subject to the additional tax on early distributions.
For more information, see How To Report Qualified Recovery Assistance Distributions in Publication 4492-A.taxmap/pubs/p590-025.htm#en_us_publink1000136421
If you choose, you generally can repay any portion of a qualified recovery assistance distribution that is eligible for tax-free rollover treatment to an eligible retirement plan. Also, you can repay a qualified recovery assistance distribution made because of a hardship from a retirement plan. However, see Exceptions
later for qualified recovery assistance 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, a repayment to an IRA is not counted when figuring the one-rollover-per-year limit. See Publication 4492-A for more information on how to report repayments.taxmap/pubs/p590-025.htm#en_us_publink1000136422
You cannot repay the following types of distributions.
- Qualified disaster recovery assistance distributions received as a beneficiary (other than a surviving spouse).
- Required minimum distributions.
- Periodic payments (other than from an IRA) that are for:
- A period of 10 years or more,
- Your life or life expectancy, or
- The joint lives or joint life expectancies of you and your beneficiary.
If you received a distribution after May 3, 2007, from an eligible retirement plan, you may be able to designate it as a qualified recovery assistance distribution. Detailed instructions for reporting these distributions on Form 8915 and Form 8606 are provided in Publication 4492-A.taxmap/pubs/p590-025.htm#en_us_publink1000138245
If you received a distribution in 2008 from an eligible retirement plan, you may be able to designate it as a qualified recovery assistance distribution. See Qualified Recovery Assistance Distributions
earlier. You will need to complete and attach Form 8915 and Form 8606 (if required) to your 2008 income tax return for any qualified recovery assistance distributions. See Form 8915
and Form 8606
in Publication 4492-A for instructions on completing the forms for this purpose.
If you received a qualified distribution to purchase or construct a main home in the Kansas disaster area, you can repay part or all of that distribution after May 3, 2007, but no later than October 22, 2008, to an eligible retirement plan. 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.
- 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.
- The distribution was received after November 4, 2006, and before May 5, 2007.
- The distribution was to be used to purchase or construct a main home in the Kansas disaster area that was not purchased or constructed because of the storms and tornadoes.
Amounts that are repaid before October 23, 2008, are treated as a qualified rollover and are not included in income. Also, for purposes of the one-rollover-per-year limit for IRAs, a repayment to an IRA is not considered a qualified rollover.
A qualified distribution not repaid before October 23, 2008, may be taxable for 2006 or 2007 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 October 23, 2008. See How to report, next, for information on completing Form 8915.taxmap/pubs/p590-025.htm#en_us_publink1000138247
To report the repayment of a qualified distribution for the purchase or construction of a main home that was not purchased or constructed due to the storms and tornadoes, use the 2005 Form 8915, Part IV. Instructions for modifying the form for this purpose are provided in Publication 4492-A.taxmap/pubs/p590-025.htm#en_us_publink1000138248
If you repaid part or all of a qualified distribution by October 22, 2008, you will need to file an amended return for that part of a distribution that was previously included in income.taxmap/pubs/p590-025.htm#en_us_publink1000138249
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 your main home on May 4, 2007, was located in the Kansas disaster area and you had an economic loss because of the storms and tornadoes. 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. If your home was located in the Kansas disaster area, the higher limits apply only to loans received during the period beginning on May 22, 2008, and ending on December 31, 2008.taxmap/pubs/p590-025.htm#en_us_publink1000138252
Payments on plan loans outstanding after May 3, 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 May 4, 2007, and ending on December 31, 2008.