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4.   Disaster-Related Relief

Hurricane-Related Relief

Special rules applied to withdrawals from and repayments to certain retirement plans (including IRAs) for taxpayers who suffered an economic loss as a result of Hurricane Katrina, Rita, or Wilma. Qualified hurricane distributions cannot be made after December 31, 2006, and they cannot be repaid after December 31, 2009.

If you received a qualified hurricane distribution, it is taxable, but is not subject to the 10% additional tax on early distributions. The taxable amount is figured in the same manner as other IRA distributions. However, the distribution is included in income ratably over 3 years unless you elected to report the entire amount in the year of distribution. You can repay the distribution and not be taxed on the distribution. See Qualified Hurricane Distributions, below.

The 2009 Form 8915, Qualified Hurricane Retirement Plan Distributions and Repayments, is used to report 2009 repayments of qualified hurricane distributions.

For information on other tax provisions related to these hurricanes, see Publication 4492, Information for Taxpayers Affected by Hurricanes Katrina, Rita, and Wilma.

Qualified Hurricane Distributions

A qualified hurricane distribution is any distribution you received in 2005 or 2006 from an eligible retirement plan (including IRAs) if both of the following conditions apply.

  1. Your main home was located in a qualified hurricane disaster area listed below on the date shown for that area.

    1. August 28, 2005, for the Hurricane Katrina disaster area. For this purpose, the Hurricane Katrina disaster area includes the states of Alabama, Florida, Louisiana, and Mississippi.

    2. September 23, 2005, for the Hurricane Rita disaster area. For this purpose, the Hurricane Rita disaster area includes the states of Louisiana and Texas.

    3. October 23, 2005, for the Hurricane Wilma disaster area. For this purpose, the Hurricane Wilma disaster area includes the state of Florida.

  2. You sustained an economic loss because of Hurricane Katrina, Rita, or Wilma and your main home was in that hurricane disaster area on the date shown in item (1) for that hurricane. Examples of an economic loss include, but are not limited to (a) loss, damage to, or destruction of real or personal property from fire, flooding, looting, vandalism, theft, wind, or other cause; (b) loss related to displacement from your home; or (c) loss of livelihood due to temporary or permanent layoffs.

If (1) and (2) applied, you generally could have designated any distribution (including periodic payments and required minimum distributions) from an eligible retirement plan as a qualified hurricane distribution, regardless of whether the distribution was made on account of Hurricane Katrina, Rita, or Wilma. Qualified hurricane distributions were permitted without regard to your need or the actual amount of your economic loss.

Distribution limit.   The total of your qualified hurricane distributions from all plans for 2005 and 2006 was limited to $100,000. If you had distributions in excess of $100,000 from more than one type of plan, such as a 401(k) plan and an IRA, you could have allocated the $100,000 limit among the plans, any way you chose.

Main home.   Generally, your main home is the home where you live most of the time. A temporary absence due to special circumstances, such as illness, education, business, military service, evacuation, or vacation will not change your main home.

Eligible retirement plan.   An eligible retirement plan can be any of the following.
  • A qualified pension, profit-sharing, or stock bonus plan (including a 401(k) plan).

  • A qualified annuity plan.

  • A tax-sheltered annuity contract.

  • A governmental section 457 deferred compensation plan.

  • A traditional, SEP, SIMPLE, or Roth IRA.

Additional 10% tax.   Qualified hurricane distributions are not subject to the 10% additional tax (including the 25% additional tax for certain distributions from SIMPLE IRAs) on early distributions from qualified retirement plans (including IRAs). However, any distributions you received in excess of the $100,000 qualified hurricane distribution limit may have been subject to the additional tax on early distributions.

Repayment of Qualified Hurricane Distributions

2009 is the last year you can repay qualified hurricane distributions.

Most qualified hurricane distributions are eligible for repayment to an eligible retirement plan. Payments received as a beneficiary (other than a surviving spouse), periodic payments (other than from IRAs), and required minimum distributions are not eligible for repayment. Periodic payments, for this purpose, are payments that are for (a) a period of 10 years or more, (b) your life or life expectancy, or (c) the joint lives or joint life expectancies of you and your beneficiary. For distributions eligible for repayment, you have 3 years from the day after the date you received the distribution to repay all or part to any plan, annuity, or IRA to which a rollover can be made. Within the time allowed, you may make as many repayments as you choose. The total amount repaid cannot be more than the amount of your qualified hurricane distributions. Amounts repaid are treated as a qualified rollover and are not included in income. The way you report repayments depends on whether you reported the distributions under the 3-year method, or you elected to report the distributions in the year of distribution.

Repayment of distributions if reporting under the 1-year election.   If you elected to include all of your qualified hurricane distributions received in a year in income for that year and then repay any portion of the distributions during the allowable 3-year period, the amount repaid will reduce the amount included in income for the year of distribution. If the repayment is made after the due date (including extensions) for your return for the year of distribution, you will need to file a revised Form 8915 with an amended return. See Amending Your Return , later.

Repayment of distributions if reporting under the 3-year method.   If you reported the distribution in income ratably over the 3-year period and you repay any portion of the distribution to an eligible retirement plan, the repayment may be carried back to reduce the amount included in income in previous years. After 2008, qualified hurricane distributions are no longer required to be included in income.

Example.

John received a $90,000 qualified hurricane distribution from his pension plan on November 15, 2006. He did not elect to include the entire distribution in his 2006 income. He included $30,000 of the distribution in income on his 2006, 2007, and 2008 returns. On November 8, 2009, John repays $45,000 to an eligible retirement plan. He makes no other repayments during the allowable 3-year period. John may carry back the repayment and reduce the amount previously included in income by amending his 2006, 2007, or 2008 return.

Repayment of qualified hurricane distribution to a Roth IRA.   If you make a repayment of a qualified hurricane distribution to a Roth IRA, the repayment is first considered to be a repayment of earnings. Any repayment of a qualified hurricane distribution in excess of earnings will increase your basis in the Roth IRA by the amount of the repayment in excess of earnings.

Example.   In 2006, Ned took a $30,000 qualified hurricane distribution from a Roth IRA. The $30,000 was the total value of the Roth IRA. He had $20,000 in basis (contributions) and $10,000 represents earnings. He elected to include the entire distribution in income for 2006. On his 2006 return, he reported the distribution on Form 8606 and Form 8915 and determined that the taxable portion of the distribution was $10,000 ($30,000 - $20,000).

   In 2009, Ned made a $15,000 repayment of the 2006 qualified hurricane distribution to his Roth IRA. He filed an amended return for 2006 for the $10,000 taxable portion of the distribution that was included in income. $5,000 of the $15,000 repayment represents basis in his Roth IRA for future distributions. $10,000 will be included in income when distributed in the future.

Amending Your Return

If you made a repayment in 2009, the repayment may reduce the amount of your qualified hurricane distributions that were previously included in income. You will need to file an amended tax return to refigure your taxable income.

Include the repayment on your 2009 Form 8915. You can file an amended return for 2006, 2007, or 2008 if either of the following applies.

  • You elected to include all of your qualified hurricane distributions in income for 2006 (not over 3 years) on your original return.

  • You received a qualified hurricane distribution in 2006 and included it in income over 3 years. You can only make a repayment if it is made within 3 years after the distribution was received. You can amend your 2006, 2007, or 2008 return, if applicable, to carry the repayment back.

File Form 1040X to amend a return you have already filed. Generally, Form 1040X must be filed within 3 years after the date the original return was filed, or within 2 years after the date the tax was paid, whichever is later.

Tax Relief for Kansas Disaster Area

Special rules provided for tax-favored withdrawals, repayments, and loans from certain retirement plans for individuals who suffered economic losses as a result of the May 4, 2007, Kansas storms and tornadoes and applied to distributions received before 2009 as qualified recovery assistance distributions (defined later). While qualified recovery assistance distributions cannot be made after 2008, the special rules explain how much of a qualified distribution has to be included in income after 2008, and when an amended return must be filed to reduce the amount of a qualified distribution previously included in income as a result of a repayment after 2008.

Qualified Recovery Assistance Distribution

Except as provided below, a qualified recovery assistance distribution is any distribution you received and designated as such from an eligible retirement plan (see Eligible retirement plan earlier under Hurricane-Related Relief) if all of the following apply.

  1. The distribution was made after May 3, 2007, and before January 1, 2009.

  2. Your main home was located in the Kansas disaster area on May 4, 2007. For a definition of main home, see Publication 4492-A, Information for Taxpayers Affected by the May 4, 2007, Kansas Storms and Tornadoes.

  3. You sustained an economic loss because of the storms and tornadoes. Examples of an economic loss include, but are not limited to:

    1. Loss, damage to, or destruction of real or personal property from fire, flooding, looting, vandalism, theft, wind, or other cause;

    2. Loss related to displacement from your home; or

    3. Loss of livelihood due to temporary or permanent layoffs.

If (1) through (3) above apply, you can generally designate any distribution (including periodic payments and required minimum distributions) from an eligible retirement plan as a qualified recovery assistance distribution, regardless of whether the distribution was made on account of the storms and tornadoes. Qualified recovery assistance distributions are permitted without regard to your need or the actual amount of your economic loss.

The total of your qualified recovery assistance distributions from all plans is limited to $100,000. If you have distributions in excess of $100,000 from more than one type of plan, such as a 401(k) plan and an IRA, you may allocate the $100,000 limit among the plans any way you choose.

A reduction or offset after May 3, 2007, of your account balance in an eligible retirement plan in order to repay a loan can also be designated as a qualified recovery assistance distribution.

Taxation of Qualified Recovery Assistance Distributions

Qualified recovery assistance distributions are included in income in equal amounts over three years. However, if you elect, you can include the entire distribution in your income in the year it was received.

Qualified recovery assistance distributions are not subject to the additional 10% tax (or the additional 25% tax for certain distributions from SIMPLE IRAs) on early distributions from qualified retirement plans (including IRAs). However, any distributions you receive in excess of the $100,000 qualified recovery assistance distribution limit may be subject to the additional tax on early distributions.

Repayment of Qualified Recovery Assistance Distributions

If you choose, you generally can repay any portion of a qualified recovery assistance distribution that is eligible for tax-free rollover treatment to an Eligible retirement plan (defined earlier under Hurricane-Related Relief). Also, you can repay a qualified recovery assistance distribution made on account of a hardship from a retirement plan. However, see Exceptions below for qualified recovery assistance distributions you cannot repay.

You have three years from the day after the date you received the distribution to make a repayment. Amounts that are repaid are treated as a qualified rollover and are not included in income. Also, for purposes of the one-rollover-per-year limitation for IRAs, a repayment to an IRA is not considered a qualified rollover. See Form 8915 for more information on how to report repayments.

Exceptions.   You cannot repay the following types of distributions.
  1. Qualified recovery assistance distributions received as a beneficiary (other than a surviving spouse).

  2. Required minimum distributions.

  3. Periodic payments (other than from an IRA) that are for:

    1. A period of 10 years or more,

    2. Your life or life expectancy, or

    3. The joint lives or joint life expectancies of you and your beneficiary.

Amending Your Return

If you make a repayment in 2009, the repayment may reduce the amount of your qualified recovery assistance distributions that were previously included in income. You may need to file an amended return to refigure your taxable income if:

  • You elected to include all of your qualified recovery assistance distributions in income in the year of the distributions (not over 3 years) on your original return, and

  • The amount of the repayment exceeds the portion of the qualified recovery assistance distributions that are includible in income for 2009, and you choose to carry the excess back to your 2008 (or if applicable, 2007) tax return.

File Form 1040X to amend a return you have already filed. Generally, Form 1040X must be filed within 3 years after the date the original return was filed, or within 2 years after the date the tax was paid, whichever is later.

Tax Relief for Midwestern Disaster Areas

See Tables 1 and 2 in Publication 4492-B, Information for Affected Taxpayers in the Midwestern Disaster Areas, for a list of the Midwestern disaster areas and the applicable disaster dates.

Special rules provide for tax-favored withdrawals, repayments, and loans from certain retirement plans for taxpayers who suffered economic losses as a result of the Midwestern severe storms, tornadoes, or flooding.

If you receive a qualified disaster recovery assistance distribution, it is taxable but is not subject to the 10% additional tax on early distributions. However, the distribution is included in income ratably over 3 years unless you elect to report the entire amount in the year of distribution. You can repay the distribution and not be taxed on the distribution. See Qualified Disaster Recovery Assistance Distribution, later.

Form 8930, Qualified Disaster Recovery Assistance Retirement Plan Distributions and Repayments, is used to report qualified disaster recovery assistance distributions and repayments.

For information on other tax provisions related to these storms, tornadoes, or flooding, see Publication 4492-B.

Qualified Disaster Recovery Assistance Distribution

A qualified disaster recovery assistance distribution is any distribution you received from an eligible retirement plan (see Eligible retirement plan earlier under Hurricane-Related Relief) if all of the following apply.

  1. The distribution was made on or after the applicable disaster date and before January 1, 2010.

  2. Your main home was located in a Midwestern disaster area on the applicable disaster date. For a definition of main home, see the Form 8930 instructions.

  3. You sustained an economic loss because of the severe storms, tornadoes, or flooding and your main home was in a Midwestern disaster area on the applicable disaster date. Examples of an economic loss include, but are not limited to:

    1. Loss, damage to, or destruction of real or personal property from fire, flooding, looting, vandalism, theft, wind, or other cause;

    2. Loss related to displacement from your home; or

    3. Loss of livelihood due to temporary or permanent layoffs.

If (1) through (3) above apply, you can generally designate any distribution (including periodic payments and required minimum distributions) from an eligible retirement plan as a qualified disaster recovery assistance distribution, regardless of whether the distribution was made on account of the severe storms, tornadoes, or flooding. Qualified disaster recovery assistance distributions are permitted without regard to your need or the actual amount of your economic loss.

A reduction or offset (on or after the applicable disaster date) of your account balance in an eligible retirement plan in order to repay a loan can also be designated as a qualified disaster recovery assistance distribution.

Distribution limit.   The total of your qualified disaster recovery assistance distributions from all plans is limited to $100,000. If you have distributions in excess of $100,000 from more than one type of plan, such as a 401(k) plan and an IRA, you may allocate the $100,000 limit among the plans any way you choose.

Example.   In August 2008, you received a distribution of $50,000. In 2009, you receive a distribution of $125,000. Both distributions meet the requirements for a qualified disaster recovery assistance distribution. If you decide to treat the entire $50,000 received in 2008 as a qualified disaster recovery assistance distribution, only $50,000 of the 2009 distribution could be treated as a qualified disaster recovery assistance distribution.

Taxation of Qualified Disaster Recovery Assistance Distributions

Qualified disaster recovery assistance distributions are included in income in equal amounts over three years. However, if you elect, you can include the entire distribution in your income in the year it was received.

Qualified disaster recovery assistance distributions are not subject to the additional 10% tax (or the additional 25% tax for certain distributions from SIMPLE IRAs) on early distributions from qualified retirement plans (including IRAs). However, any distributions you receive in excess of the $100,000 qualified disaster recovery assistance distribution limit may be subject to the additional tax on early distributions.

For more information, see Form 8930.

Repayment of Qualified Disaster Recovery Assistance Distributions

If you choose, you generally can repay any portion of a qualified disaster recovery assistance distribution that is eligible for tax-free rollover treatment to an eligible retirement plan. Also, you can repay a qualified disaster recovery assistance distribution made on account of a hardship from a retirement plan. However, see Exceptions later for qualified disaster recovery assistance distributions you cannot repay.

You have three years from the day after the date you received the distribution to make a repayment. Amounts that are repaid are treated as a qualified rollover and are not included in income. Also, for purposes of the one-rollover-per-year limitation for IRAs, a repayment to an IRA is not considered a qualified rollover. See Form 8930 for more information on how to report repayments.

Repayment of distributions if reporting under the 1-year election.   If you elect to include all of your qualified disaster recovery assistance distributions received in a year in income for that year and then repay any portion of the distributions during the allowable 3-year period, the amount repaid will reduce the amount included in income for the year of distribution. If the repayment is made after the due date (including extensions) for your return for the year of distribution, you will need to file a revised Form 8930 with an amended return. See Amending Your Return , later.

Example.   Alice received a $45,000 qualified disaster recovery assistance distribution on September 1, 2009. After receiving reimbursement from her insurance company for a casualty loss, Alice repays $45,000 to an IRA on March 31, 2010. She reports the distribution and the repayment on Form 8930, which she files with her timely filed 2009 tax return. As a result, no portion of the distribution is included in income on her return.

Repayment of distributions if reporting under the 3-year method.   If you are reporting the distribution in income over the 3-year period and you repay any portion of the distribution to an eligible retirement plan before filing your 2009 tax return by the due date (including extensions) for that return, the repayment will reduce the portion of the distribution that is included in income in 2009. If you repay a portion after the due date (including extensions) for filing your 2009 return, the repayment will reduce the portion of your distribution that is includible in income for the year it was repaid, the excess may be carried forward or back to reduce the amount included in income for the year to which it was carried.

Example.   Brian received a $90,000 qualified disaster recovery assistance distribution from his pension plan on October 15, 2009. He does not elect to include the entire distribution in his 2009 income. Without any repayments, he would include $30,000 of the distribution in income on each of his 2009, 2010, and 2011 returns. On October 30, 2010, Brian repays $45,000 to an eligible retirement plan. He makes no other repayments during the 3-year period. Brian may report the distribution and repayment in either of the following ways.
  • Report $0 in income on his 2010 return, and carry the $15,000 excess repayment ($45,000 - $30,000) forward to 2011 and reduce the amount reported in that year to $15,000, or

  • Report $0 in income on his 2010 return, report $30,000 on his 2011 return, and file an amended return for 2009 to reduce the amount previously included in income to $15,000 ($30,000 - $15,000).

Exceptions.   You cannot repay the following types of distributions.
  1. Qualified disaster recovery assistance distributions received as a beneficiary (other than a surviving spouse).

  2. Required minimum distributions.

  3. Periodic payments (other than from an IRA) that are for:

    1. A period of 10 years or more,

    2. Your life or life expectancy, or

    3. The joint lives or joint life expectancies of you and your beneficiary.

Amending Your Return

If after filing your original return, you make a repayment, the repayment may reduce the amount of your qualified disaster recovery assistance distributions that were previously included in income. Depending on when a repayment is made, you may need to file an amended tax return to refigure your taxable income.

If you make a repayment by the due date of your original return (including extensions), include the repayment on your amended return.

If you make a repayment after the due date of your original return (including extensions), include it on your amended return only if either of the following apply.

  • You elected to include all of your qualified disaster recovery assistance distributions in income in the year of the distributions (not over 3 years) on your original return.

  • The amount of the repayment exceeds the portion of the qualified disaster recovery assistance distributions that are includible in income for 2010 and you choose to carry the excess back to your 2009 tax return.

Example.   You received a qualified disaster recovery assistance distribution in the amount of $90,000 on September 15, 2009. You choose to spread the $90,000 over 3 years ($30,000 in income for 2009, 2010, and 2011). On October 15, 2010, you make a repayment of $45,000. For 2010, none of the qualified disaster recovery assistance distribution is includible in income. The excess repayment of $15,000 can be carried back to 2009. Also, rather than carry the excess repayment back to 2009, you can carry it forward to 2011.

  File Form 1040X to amend a return you have already filed. Generally, Form 1040X must be filed within 3 years after the date the original return was filed, or within 2 years after the date the tax was paid, whichever is later.

Loans From Qualified Plans

The following benefits are available to qualified individuals.

  • Increases to the limits for distributions treated as loans from employer plans.

  • A one-year suspension for payments due on plan loans.

Qualified individual.   You are a qualified individual if your main home was located in a Midwestern disaster area on the applicable disaster date and you had an economic loss because of the severe storms, tornadoes, or flooding. Examples of an economic loss include, but are not limited to:
  • Loss, damage to, or destruction of real or personal property from fire, flooding, looting, vandalism, theft, wind, or other cause;

  • Loss related to displacement from your home; or

  • Loss of livelihood due to temporary or permanent layoffs.

Limits on plan loans.   The $50,000 limit for distributions treated as plan loans is increased to $100,000. In addition, the limit based on 50% of your vested accrued benefit is increased to 100% of that benefit. If your main home was located in a Midwestern disaster area, the higher limits applied only to loans received during the period beginning on October 3, 2008, and before January 1, 2010.

One-year suspension of loan payments.   Payments on plan loans outstanding on or after the applicable disaster date, may be suspended for one year by the plan administrator. To qualify for the suspension, the due date for any loan payment must have been during the period beginning on the applicable disaster date and ending on December 31, 2009.


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