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NEW YORK (CNN/Money) – As expected, the Internal Revenue Service on Thursday eased restrictions for Hurricane Katrina survivors who wish to take loans or make early withdrawals from their 401(k)s and other workplace retirement plans.
The IRS said it will let organizations that offer workers 401(k)s, 403(b)s, or certain 457 deferred-compensation plans relax the rules governing participants' taking loans or making hardship withdrawals from their accounts.
"This relief will make it possible for people to get their retirement money more quickly with a minimum of red tape," said IRS Commissioner Mark W. Everson in a statement.
For example, under normal circumstances, in order to make a hardship withdrawal, you must provide documentation proving you have no other financial resources on which to draw and the money must be used to pay for a home, postsecondary tuition, medical expenses or be used to prevent eviction or foreclosure.
The IRS is now allowing qualified retirement plans to ignore those conditions and to relax any documentation requirements.
Separately, the Senate and House on Thursday each passed a bill that included provisions to make it easier for Katrina survivors to access their retirement money in their IRAs and qualified retirement plans such as 401(k)s.
Should the bills pass into law, Katrina survivors would be excused from paying a 10 percent early-withdrawal penalty on their retirement savings up to $100,000 if they're under 59-1/2.
And they would be given three years in which to pay the income tax due on those early distributions. Normally, one must pay income tax on the distribution the year it is made.
The bill would also double the allowable limit on loan amounts to the lesser of $100,000 or 100 percent of an individual's account balance.
Other measures on tap
The Senate and House bills provide for a host of other relief measures. They would, for instance, make it easier for businesses and individuals to make tax-advantaged charitable contributions to aid with Katrina relief.
For example, under both bills, taxpayers who house evacuees in their principal residence for a minimum of 60 days to take an additional personal exemption of $500 per displaced person, up to a maximum of $2,000.
But the Senate bill is both more extensive and more expensive than the House bill over 10 years. The Joint Committee on Taxation in a preliminary estimate projects the Senate bill will cost $8.2 billion, said Jill Gerber, spokeswoman for the Senate Finance Committee. The House bill is estimated to cost $5.28 billion, said Rob Vandenheuvel, a spokesman for the House Committee on Ways and Means.
The hope, Gerber said, is that behind-the-doors negotiations could yield a compromise bill as early as Friday.
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The IRS has already instituted a number of other tax relief measures for Katrina victims. To see them, click here.
For a look a Labor Department job network service for Katrina victims, click here.
For more news on proposed changes in 401(k) plans, click here.
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