401K Plans Affected by President Trump Signing "HR 1892"


Eliminate the ban of 401,000 contributions after six months of interruption of difficulties: The IRS will amend its regulations to allow employees who receive hardship distributions from a pension plan to continue to contribute to the plan. The new regulation will apply to plan years beginning after December 31, 2018.

Include QNECs, QMACs and benefit-sharing contributions in removing difficulties: The financial hardship withdrawal rules in the 401k plans are amended to allow employers to extend the distributions of financial hardship to unauthorized amounts. This would also remove the obligation to take a loan before taking a withdrawal due to difficulties. The regulation applies to plan years beginning after December 31, 2018.

Authorization of the IRS to release a royalty on property held in the pension plans: The new law allows a person to return his IRA or employer-sponsored plan with a withdrawn amount (and any interest thereon) in accordance with a levy and then returned to the person by the IRS. Contributions are allowed without regard to the limits normally applicable to ARI contributions and fund transfers. The regulation comes into force for taxation years beginning after December 31, 2017.

Relief from an early withdrawal penalty of 10% for use by participants of the California Natural Disaster Fund: In general, the new law provides for a reduction of the early withdrawal penalty of 10% for eligible distributions of up to $ 100,000 made between October 8, 2017 and January 1, 2019. A participant whose location of principal residence was in a California natural disaster and suffered economic loss due to forest fires can make a withdrawal.

Distributions may be included proportionally in income over a period of three years from the year of distribution, unless the person elects not to apply proportionate inclusion. Instead, amounts returned to the plan over the three-year period would be treated as a deferral and not included in income. The new law also:

  • allows individuals to return funds to the pension plans if the funds were distributed in anticipation of a home purchase in a disaster area by a forest fire that was canceled due to wildfires; and

  • Increases the limit and extends the deadline for repayment of loans from pension plans.

Loan repayment relief in case of termination of plan member or plan

For a participant participant credit that would otherwise be taxed as a distribution, the participant whose employment terminates (or terminates) with an outstanding loan will have until the due date, including extensions, to produce his income tax return for the year in order to contribute the compensated amount to an individual retirement account or other eligible retirement plan to prevent the loan offset from being imposed as a distribution.

This tax-free rollover treatment does not DO NOT apply to any amount of compensation under a loan already deemed to be taxed as a distribution under the Code (and indicated on Form 1099-R), or because its terms were not not in compliance with the Code, either because he was in default after the default cure period plan. This opportunity is available for compensation after 2017.

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