Originally Posted by scagnt83
Neither my post or the link provided suggested any change to taxation on Distributions.
The change is in:
- What qualifies as a Hardship
- Requiring Loans before Hardship Withdrawals
- Not allowing Contributions for 6 months after taking a Hardship Withdrawal
- Streamlined the paperwork process and required documents for Hardships and Loans
- 401k Plans that do not allow Hardship Withdrawals or Loans, can amend the Plan midyear. And can start making those payments immediately, before the amendments are officially filed
This is obviously not going to make things "OK" for a person. But every little bit helps.
And not requiring the Loan before hand (and paying the interest on them), and allowing the person to continue Contributions after the Hardship Withdrawal, will certainly help people out to some extent.
Giving flood victims easy access to their money I think will most likely be VERY BAD & make problem worse.
I was hoping the government would let people pull the money with no taxes & no penalties.
Here's the scenario, my old CPA told me this. My CPA told me never take a loan against a retirement plan. #1 reason people have lots of financial difficulties & end up owing the IRS.
Everyone has good intentions of paying back the loan & then life gets in the way another hurricane hits the factory never reopens after Harvey etc. etc.. Then no income coming in & owe IRS 10% penalty & distribution counted as income.
...... lots of links out there why this is a bad idea. here's one link:
Read more: 8 Reasons To Never Borrow From Your 401(k) 8 Reasons To Never Borrow From Your 401(k)
4. If Your Financial Situation Deteriorates, You Could Lose Even More Money
Should you find yourself in a position where you are unable to repay the loan, it is treated as a withdrawal and the outstanding loan balance will be subject to current income taxes in addition to a 10% early withdrawal penalty if you are under age 59½. (For more on this, read Tough Times … Should You Dip into Your Qualified Plan?.)
However, there are several exceptions to the early withdrawal penalty, such as the post-55 exception. (For more on this, check out the IRS page on this topic.)
5. You Are Trapped
If you have an outstanding loan, most plans require that the loan be immediately repaid if you quit your job. "If you cannot repay the loan 60 days after losing your job, it will become fully taxable and may be subject to a 10% early withdrawal penalty," says Carlos Dias Jr., wealth manager, Excel Tax & Wealth Group, Lake Mary, Fla.
That means as long as you have a loan you are stuck in your current job and may be forced to pass up a better opportunity should one come along. Or, you can take the loan balance as a withdrawal and pay the 10% penalty, which further compounds the growth opportunities that you have missed by taking the loan.