Pension & Benefits News Senate Tax Extenders Bill includes disaster relief provisions affecting retirement plans
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Tuesday, March 26, 2019

Senate Tax Extenders Bill includes disaster relief provisions affecting retirement plans

By Pension and Benefits Editorial Staff

Senate Finance Committee (SFC) Chairman Chuck Grassley (R-IA) and ranking member Ron Wyden (D-OR) have introduced the Tax Extender and Disaster Relief Bill of 2019 (Sen. 617), which would retroactively extend 29 expired tax breaks. Additionally, the bill includes certain disaster tax relief benefits that affect retirement plans.

The bill provides disaster tax relief benefits to individuals and businesses affected by major disasters occurring in 2018. However, the major disasters do not include the California wildfire disaster area. Under the bill, qualified disaster distributions for any taxable year cannot exceed the excess (if any) of $100,000 over the aggregate amounts treated as qualified disaster distributions received by an individual for all prior taxable years. Qualified disaster distributions are any distributions from an eligible retirement plan, including IRAs, made on or after the first day of the qualified disaster period and before the date that is 180 days after the date of the enactment of the bill to an individual whose principal residence is located in the qualified disaster area and who has sustained an economic loss due to the qualified disaster.

The 10% excise tax for early plan distributions under Code Sec. 72(t) will not apply to qualified disaster distributions. Any individual who receives a qualified disaster distribution may make one or more contributions to his or her plan at any time during the three-year period beginning on the day after the date on which the distribution was received. Any amount of qualified disaster distributions taken by plan participants that are required to be included in gross income for a taxable year will be included ratably over a three-taxable year period unless the participant elects otherwise. An exemption for qualified disaster distributions from trustee-to-trustee transfer and withholding rules is provided.

The bill will increase the limit on plan loans during the 180-day period beginning on the date of the enactment of the bill to $100,000. The date for repayment of these loans can be delayed for one year (or, if later, until the date which is 180 days after the date of the enactment of the bill).

Any plan amendment that is required to comply with the bill’s disaster relief provisions can be made on or before the last day of the first plan year beginning on or after January 1, 2020, or a later date prescribed by the Secretary of the Treasury.

SOURCE:  S. 617.

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