The Treasury and IRS have issued Notice 2005-92 providing some much-needed guidance relating to the application of the Katrina Emergency Tax Relief Act of 2005 ("KETRA") for Hurricane Katrina victims and employer-sponsored retirement plans and IRAs. Some highlights of the…
The Treasury and IRS have issued Notice 2005-92 providing some much-needed guidance relating to the application of the Katrina Emergency Tax Relief Act of 2005 (“KETRA”) for Hurricane Katrina victims and employer-sponsored retirement plans and IRAs. Some highlights of the notice:
1. An individual’s principal place of abode is where the individual lives unless temporarily absent due to special circumstances. If an individual’s principal place of abode was in the Hurricane Katrina disaster area immediately before August 28, 2005, and the individual evacuated because of Hurricane Katrina, the individual’s principal place of abode will still be considered to be in the Hurricane Katrina disaster area on August 28, 2005.
2. An employer is permitted to expand the distribution options under its plan to allow an amount attributable to an elective, qualified nonelective, or qualified matching contribution under a qualified cash or deferred arrangement to be distributed as a Katrina distribution even though the distribution is before an otherwise permitted distributable event, such as severance from employment, disability, or attainment of age 59½. However, KETRA does not change the requirements for when plan distributions are permitted to be made from employer retirement plans. Thus, for example, a qualified plan that is a pension plan (e.g. a money purchase plan) is not permitted to make in-service distributions merely because the distribution, if made, would qualify as a Katrina distribution. Furthermore, a pension plan is not permitted to make a distribution under a distribution form that is not a qualified joint and survivor annuity without spousal consent merely because the distribution, if made, could be treated as a Katrina distribution.
3. If a distribution is treated as a Katrina distribution by a retirement plan, the plan is not required to offer the qualified individual a direct rollover with respect to the distribution. In addition, the plan administrator does not have to provide a § 402(f) notice.
4. An employer is permitted to choose whether to treat distributions under its plans as Katrina distributions. Furthermore, the employer (or plan administrator) is permitted to develop any reasonable procedures for identifying which distributions are treated as Katrina distributions under its retirement plans.
5. A plan will not fail to satisfy any requirement under the Code merely because a qualified individual’s total Katrina distributions exceed $100,000, taking into account distributions from IRAs or other eligible retirement plans maintained by unrelated employers.
6. The IRS will be issuing guidance in the future relating to plan amendments for KETRA. For employer retirement plans other than a governmental plan, the date by which any plan amendment to reflect KETRA is required to be made will not be earlier than the last day of the first plan year beginning on or after January 1, 2007.
Access previous posts on KETRA here.