Publication 590 (2008), Individual Retirement Arrangements (IRAs)

IRS Resources

4. Disaster-Related Relief

Table of Contents

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. While qualified hurricane distributions cannot be made after December 31, 2006, the special rules still apply to repayments of these distributions.

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 , later.

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

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 all of the following conditions apply.

The distribution was made:
1. After August 24, 2005, and before January 1, 2007, for Hurricane Katrina.
2. After September 22, 2005, and before January 1, 2007, for Hurricane Rita.
3. After October 22, 2005, and before January 1, 2007, for Hurricane Wilma.
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.
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 (2) 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 you met all these conditions, 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.

Example. In 2005, you received a distribution of $50,000. In 2006, you received a distribution of $125,000. Both distributions met the requirements for a qualified hurricane distribution. If you decided to treat the entire $50,000 received in 2005 as a qualified hurricane distribution, only $50,000 of the 2006 distribution could have been treated as a qualified hurricane distribution.

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

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 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 2008 tax return by the due date (including extensions) for that return, the repayment will reduce the portion of the distribution that was included in income in 2008. After 2008, qualified hurricane distributions are no longer required to be included in income. If, during 2008, you repay more than is otherwise includible in income for 2008, the excess may be carried back to reduce the amount included in income for that year.

Example.

John received a $90,000 qualified hurricane distribution from his pension plan on November 15, 2006. He does not elect to include the entire distribution in his 2006 income. Without any repayments, he would include $30,000 of the distribution in income on each of his 2006, 2007, and 2008 returns. On November 10, 2008, John repays $45,000 to an IRA. He makes no other repayments during the allowable 3-year period. John may report the distribution and repayment in either of the following ways.

Report $0 in income on his 2008 return, and file an amended return for 2006 to carry the excess repayment of $15,000 ($45,000 - $30,000) back to reduce the amount previously included in income to $15,000 ($30,000 - $15,000), or
Report $0 in income on his 2008 return, and file an amended return for 2007 to carry the excess repayment of $15,000 ($45,000 - $30,000) back to reduce the amount previously included in income to $15,000 ($30,000 - $15,000).

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 2005, Ned takes a $30,000 qualified hurricane distribution from a Roth IRA. The $30,000 is the total value of the Roth IRA. He has $20,000 in basis (contributions) and $10,000 represents earnings. He elects to include the entire distribution in income for 2005. In 2005, he reports the distribution on Form 8606 and Form 8915 and determines that the taxable portion of the distribution is $10,000 ($30,000 - $20,000).

In 2008, Ned makes a $15,000 repayment of the 2005 qualified hurricane distribution to his Roth IRA. He will file an amended return for 2005 for the $10,000 taxable portion of the distribution that was included in income. $5,000 of the $15,000 repayment will represent basis in his Roth IRA for future distributions. $10,000 will be included in income when distributed in the future.

Amending Your Return

If, after filing your original return, you make a repayment, the repayment may reduce the amount of your qualified hurricane 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 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 amend your 2006, 2007, or 2008 return, if applicable to carry the repayment back.

Example.

You received a qualified hurricane distribution in the amount of $90,000 on October 15, 2006. You choose to spread the $90,000 over 3 years ($30,000 in income for 2006, 2007, and 2008). On November 19, 2008, you make a repayment of $45,000. For 2008, none of the qualified hurricane distribution is includible in income. The excess repayment of $15,000 can be carried back to 2006 or 2007.

File Form 1040X, Amended U.S. Individual Income Tax Return, 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 the Kansas Disaster Area

Introduction

New rules provide for tax-favored withdrawals, repayments, and loans from certain retirement plans for taxpayers who suffered economic losses as a result of the storms and tornadoes that began on May 4, 2007.

If you received a qualified recovery assistance 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 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 Recovery Assistance Distributions, later.

The 2006 Form 8915, Qualified Hurricane Retirement Plan Distributions and Repayments, is modified and used to report qualified recovery assistance distributions and repayments. For information on other tax provisions related to the storms and tornadoes that began on May 4, 2007, see Publication 4492-A, Information for Taxpayers Affected By the May 4, 2007, Kansas Storms and Tornadoes.

Qualified Recovery Assistance Distributions

A qualified recovery assistance distribution is any distribution you received and designated as such from an eligible retirement plan if all of the following apply.

The distribution was made after May 3, 2007, and before January 1, 2009.
Your main home was located in the Kansas disaster area on May 4, 2007.
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 or 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 can 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.

Kansas disaster area. The Kansas disaster area covers the Kansas counties of Barton, Clay, Cloud, Comanche, Dickinson, Edwards, Ellsworth, Kiowa, Leavenworth, Lyon, McPherson, Osage, Osborne, Ottawa, Phillips, Pottawatomie, Pratt, Reno, Rice, Riley, Saline, Shawnee, Smith, and Stafford.

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.

Taxation of Qualified Recovery Assistance Distributions

Qualified recovery assistance distributions are included in income in equal amounts over three years. However, you can elect to 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.

For more information, see How To Report Qualified Recovery Assistance Distributions in Publication 4492-A.

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. Also, you can repay a qualified recovery assistance distribution made because of a hardship from a retirement plan. However, see Exceptions later 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, a repayment to an IRA is not counted when figuring the one-rollover-per-year limit. See Publication 4492-A for more information on how to report repayments.

Exceptions. You cannot repay the following types of distributions.

Qualified disaster recovery assistance distributions received as a beneficiary (other than a surviving spouse).
Required minimum distributions.
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.

How To Report Qualified Recovery Assistance Distributions

2007 Qualified Recovery Assistance Distributions. If you received a distribution after May 3, 2007, from an eligible retirement plan, you may be able to designate it as a qualified recovery assistance distribution. Detailed instructions for reporting these distributions on Form 8915 and Form 8606 are provided in Publication 4492-A.

2008 Qualified Recovery Assistance Distributions. If you received a distribution in 2008 from an eligible retirement plan, you may be able to designate it as a qualified recovery assistance distribution. See Qualified Recovery Assistance Distributions earlier. You will need to complete and attach Form 8915 and Form 8606 (if required) to your 2008 income tax return for any qualified recovery assistance distributions. See Form 8915 and Form 8606 in Publication 4492-A for instructions on completing the forms for this purpose.

Repayment of Qualified Distributions for the Purchase or Construction of a Main Home

If you received a qualified distribution to purchase or construct a main home in the Kansas disaster area, you can repay part or all of that distribution after May 3, 2007, but no later than October 22, 2008, to an eligible retirement plan. For this purpose, an eligible retirement plan is any plan, annuity, or IRA to which a qualified rollover can be made.

To be a qualified distribution, the distribution must meet all of the following requirements.

The distribution is a hardship distribution from a 401(k) plan, a hardship distribution from a tax-sheltered annuity contract, or a qualified first-time homebuyer distribution from an IRA.
The distribution was received after November 4, 2006, and before May 5, 2007.
The distribution was to be used to purchase or construct a main home in the Kansas disaster area that was not purchased or constructed because of the storms and tornadoes.

Amounts that are repaid before October 23, 2008, are treated as a qualified rollover and are not included in income. Also, for purposes of the one-rollover-per-year limit for IRAs, a repayment to an IRA is not considered a qualified rollover.

A qualified distribution not repaid before October 23, 2008, may be taxable for 2006 or 2007 and subject to the additional 10% tax (or the additional 25% tax for certain SIMPLE IRAs) on early distributions.

You must file Form 8915 if you received a qualified distribution that you repaid, in whole or in part, before October 23, 2008. See How to report, next, for information on completing Form 8915.

How to report. To report the repayment of a qualified distribution for the purchase or construction of a main home that was not purchased or constructed due to the storms and tornadoes, use the 2005 Form 8915, Part IV. Instructions for modifying the form for this purpose are provided in Publication 4492-A.

Amended return. If you repaid part or all of a qualified distribution by October 22, 2008, you will need to file an amended return for that part of a distribution that was previously included in income.

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 1-year suspension for payments due on plan loans.

Qualified individual. You are a qualified individual if your main home on May 4, 2007, was located in the Kansas disaster area and you had an economic loss because of the storms and tornadoes. 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 home was located in the Kansas disaster area, the higher limits apply only to loans received during the period beginning on May 22, 2008, and ending on December 31, 2008.

One-year suspension of loan payments. Payments on plan loans outstanding after May 3, 2007, may be suspended for 1 year by the plan administrator. To qualify for the suspension, the due date for any loan payment must occur during the period beginning on May 4, 2007, and ending on December 31, 2008.

Tax Relief for the Midwestern Disaster Areas

Introduction

New rules provide for tax-favored withdrawals, repayments, and loans from certain retirement plans for taxpayers who suffered economic losses as a result of the severe storms, tornadoes, and flooding that occurred in the Midwestern disaster areas.

If you received a qualified disaster recovery assistance 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 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 Distributions, 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 severe storms, tornadoes, or flooding, see Publication 4492-B, Information for Affected Taxpayers in the Midwestern Disaster Areas. Tables 1 and 2 in Publication 4492-B list the affected counties by state and applicable disaster date that are included in the Midwestern disaster areas.

Qualified Disaster Recovery Assistance Distributions

A qualified disaster recovery assistance distribution is any distribution you received from an eligible retirement plan if all of the following apply.

The distribution was made on or after the applicable disaster date and before January 1, 2010.
Your main home was located in a Midwestern disaster area on the applicable disaster date.
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.

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.

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.

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.

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 below 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, a repayment to an IRA is not counted when figuring the one-rollover-per-year limit. See Form 8930 for more information on how to report repayments.

Exceptions. You cannot repay the following types of distributions.

Qualified disaster recovery assistance distributions received as a beneficiary (other than a surviving spouse).
Required minimum distributions.
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.

Repayment of Qualified Distributions for the Purchase or Construction of a Main Home

If you received a qualified distribution to purchase or construct a main home in a Midwestern disaster area, you can repay part or all of that distribution on or after the applicable disaster date, but no later than March 3, 2009, to an eligible retirement plan. For this purpose, an eligible retirement plan is any plan, annuity, or IRA to which a qualified rollover can be made.

To be a qualified distribution, the distribution must meet all of the following requirements.

The distribution is a hardship distribution from a 401(k) plan, a hardship distribution from a tax-sheltered annuity contract, or a qualified first-time homebuyer distribution from an IRA.
The distribution was received within 6 months prior to the day after the applicable disaster date.
The distribution was to be used to purchase or construct a main home in a Midwestern disaster area that was not purchased or constructed because of the severe storms, tornadoes, or flooding.

Amounts that are repaid before March 4, 2009, are treated as a qualified rollover and are not included in income. Also, for purposes of the one-rollover-per-year limit for IRAs, a repayment to an IRA is not considered a qualified rollover.

A qualified distribution not repaid before March 4, 2009, may be taxable for 2007 or 2008 and subject to the additional 10% tax (or the additional 25% tax for certain SIMPLE IRAs) on early distributions.

You must file Form 8930 if you received a qualified distribution that you repaid, in whole or in part, before March 4, 2009.

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 1-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 apply only to loans received during the period beginning on October 3, 2008, and ending on December 31, 2009.

One-year suspension of loan payments. Payments on plan loans outstanding on or after the applicable disaster date, may be suspended for 1 year by the plan administrator. To qualify for the suspension, the due date for any loan payment must occur during the period beginning on the applicable disaster date and ending on December 31, 2009.

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