Decmber Q and A

Q:

My employee asked me for a Hurricane Harvey 401(k) loan from my plan. Is there such a thing?

A:

Yes, participants in eligible 401(k) plans, 403(b) tax-sheltered annuities and 457(b) deferred-compensation plans may take advantage of streamlined loan procedures and liberalized hardship distribution rules, according to the IRS. The six-month ban on 401(k) and 403(b) contributions that normally occurs after such distributions will not apply. Plans can make loans or hardship distributions before formally amending the plan, and they can allow distributions even for food and shelter. If a plan requires certain documentation before making a distribution, it can relax this requirement. The distribution must be made by January 31, 2018.

Q:

I paid for my daughter’s college tuition and off-campus housing with my 529 plan. A friend of mine said I made an illegal withdrawal. Is that true?

A:

It’s not illegal, but you may have exceeded allowable qualified education expenses. That’s because your 529 plan pays for qualified tuition, fees, books, equipment, supplies and board. If your daughter’s housing off campus is more expensive than what the college charges for room and board, you could be on the hook for income taxes and a 10% penalty on the amount that exceeds qualified expenses.