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Wednesday, November 30, 2005

IRS Provides Guidance on Giving Katrina Victims Easier Access to Retirement Savings

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The Treasury Department and IRS today issued Notice 2005-92, which provides guidance on the application of two provisions of the Katrina Emergency Tax Relief Act of 2005 (KETRA) for Hurricane Katrina victims and employer-sponsored retirement plans and IRAs.  From IR-2005-137:

Under one provision of KETRA, individuals who live in one of the four states affected by Hurricane Katrina and who suffered an economic loss as a result of that hurricane receive favorable tax treatment with respect to distributions from eligible retirement plans that are qualified Hurricane Katrina distributions, called "Katrina distributions." A Katrina distribution is not subject to the 10% additional tax applicable to early distributions from a retirement plan (25% in the case of a Simple IRA), is generally includible in income over a 3-year period, and -- to the extent the distribution is eligible for tax-free rollover treatment and is contributed to an eligible retirement plan (recontributed) within a 3-year period -- will not be includible in income at all.

Another provision of KETRA increases the allowable plan loan amount from an employer-sponsored retirement plan and provides for a suspension of payments for plan loans outstanding on or after August 25, 2005 that are made to Katrina victims.

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