Hardship Withdrawal Changes Included in Budget Deal

In the two-year budget bill signed by President Donald Trump, there are provisions that affect retirement plans.

If the Internal Revenue Service (IRS) has levied a participant’s employer-sponsored retirement account or individual retirement account (IRA) and subsequently returned the money and interest, the bill allows for the person to recontribute the amount to the retirement plan or IRA. The contribution will be treated as a rollover, and the interest treated as earnings within the plan.

According to the bill, the plan or IRA must permit rollovers and the contribution must be made no later “than the due date (not including extensions) for filing the return of tax for the taxable year in which such property or amount of money is returned.” The rule regarding the allowance of repayment of a levy applies to 401(k)s, 403(b)s and 457 plans. It is effective for taxable years beginning after December 31, 2017.

The bill also calls for the Secretary of Treasury to amend regulations to delete the six-month prohibition on contributions to a retirement plan following a hardship withdrawal. The allowance of hardship withdrawals is also extended in the bill to contributions to a profit sharing or stock bonus plan, qualified non-elective contributions (QNECs) and qualified matching contributions (QMACs) and earnings on the contributions now allowed. In addition, the bill says, “A distribution shall not be treated as failing to be made upon the hardship of an employee solely because the employee does not take any available loan under the plan.” These rules say they amend section 401(k) and subsections under that. They are effective for plan years beginning after December 31, 2018.

The bill provides relief from the early withdrawal penalty on distributions of up to $100,000 from an employer plan for victims of California wildfires. Participants can spread the amount over three years for inclusion in income for tax purposes. It also allows individuals to repay any distributed amounts to the plan within three years from the date the distribution was made. The bill also includes an increase in the allowable amount of loans for wildfire victims and relief for loan repayments not made due to the wildfires.

Finally, the new law calls for creation of a Joint Select Committee to Solve the Multiemployer Pension Crisis which will introduce bipartisan legislation to address the multiemployer pension crisis by December this year.