IRS Grants Tax Favored Treatment for Early Distribution of Retirement Funds

Taxpayers who suffered losses resulting from Hurricane Katrina are being advised by the Internal Revenue Service (IRS) to be aware of recent changes in tax law providing for tax-favored withdrawals, reconstitutions and loans from certain retirement plans.


Advertisement


Click Here
The combined advantage of PPC and Checkpoint® for integrated tax compliance and planning

RIA has now integrated the industry's leading tax compliance and planning resources from PPC on the award-winning online platform, Checkpoint.

PPC's Tax Deskbooks™, renowned for the unique Key Issues Approach to step-by-step return preparation, and PPC's Business Tax Planning Library™, which provides tax return roadmaps and practice aids to quickly identify potential tax planning opportunities from completed tax returns, are both now easily accessed on Checkpoint.

Furthermore, practitioners can have access to RIA's extensive online tools on Checkpoint such as electronic forms, client letters, checklists, worksheets and financial calculators. And links to leading tax preparation software, UltraTax, GoSystemTax RS and InSource Express RS provides tax practitioners with even more efficiencies.

All the critical tax information a tax practitioner needs is now in one place, accessible from anywhere.

See for yourself the advantage of having the most trusted tax compliance and planning information on the most powerful and comprehensive online platform. Try PPC's Tax Deskbooks™ on Checkpoint and PPC's Business Tax Planning Library™ on Checkpoint FREE for 30 days.

Individuals affected by Hurricane Katrina taking qualified distributions between August 25, 2005 and January 1, 2007 from eligible retirement plans will not have to pay the 10 percent additional tax on early distributions. Total combined distributions are limited to $100,000.

Distributions are generally included in income and can be included ratably over three years. If the amount of the distribution is re-contributed to an eligible plan within three years, the distribution is treated as a rollover. In addition, qualified Hurricane Katrina distributions are not subject to the mandatory 20 percent withholding.

Loans made from a qualified employer plan to an eligible individual between August 25, 2005 and January 1, 2007 should not be treated as a taxable distribution unless it exceeds a certain dollar limit. The dollar limit is the lesser amount of either subtracting the highest outstanding balance of loans from the plan in the previous from $100,000 or the individual’s vested benefit under the plan.

Additionally, individuals taking hardship or first-time homebuyer distributions from qualifying plans between February 28,2005 and August 29, 2005 to purchase or build a home in the disaster area that was not purchased or built as a result of Hurricane Katrina could re-contribute the funds to the plan without consequence between August 25, 2005 and February 28, 2005.

The IRS is drafting Form 8915, Qualified Hurricane Katrina Retirement Plan Distributions and Repayments, which will be used by taxpayers to report distributions and determine the amount included in income. The IRS is also in the process of issuing guidance on the tax favored treatment distributions from retirement plans as they apply to taxpayers affected by Hurricane Katrina.


Already a member? log in here.

Editor's Choice

Upcoming CPE Webinars

Nov 24This webcast presents basic principles of revenue recognition, including new ASU 2014-09 for the contract method. Also, CPAs in industries who want a refresher on revenue accounting standards will benefit.
Dec 3The materials discuss the concepts and principles in the AICPA’s new special purpose framework.
Dec 9A key component to improving your firm’s workflow efficiency while enhancing your profitability at the same time is how you leverage emerging technologies.
Dec 9Kristen Rampe will cover how to diffuse the tension in challenging situations in this one-hour webinar.