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Budget Bill Retirement Plan Implications

There are several provisions within the Bi-Partisan Budget Act of 2018 pertaining to retirement plans, inclusive of the following, as outlined below:

  • The six-month prohibition on contributions to a retirement plan post hardship withdrawal has been lifted effective for plan years beginning after December 31, 2018.
  • The bill provides for relief from the 10% early withdrawal penalty on qualified distributions of up to $100,000 from an employer plan initiated on or after October 8, 2017 and before January 1, 2019 for the victims of the California wildfires. Distributions must be initiated by an individual whose primary residence was located in a wildfire disaster area or who sustained an economic loss due to the wildfires. Participants can spread the amount over three years for inclusion in income for tax purposes. It also allows individuals to repay any distributed amounts to the plan within three years from the date the distribution was made. In addition, the bill also permits an increase in the allowable amount of loans for wildfire victims and relief for loan repayments neglected to be made due to the wildfires.
  • An individual can “recontribute” to an employer-sponsored retirement plan or IRA an amount previously withdrawn (inclusive of interest) in response to an IRS levy on assets, later returned to the individual by the IRS. Normally applicable limits for IRA contributions and rollovers do not apply to such re-contributions. The provision is effective for tax years beginning after December 31, 2017.
  • Hardship withdrawal rules have been modified as the requirement to take a loan before taking a hardship withdrawal has been lifted. Hardship withdrawals from cash or deferred arrangements can now include QNECs, QMAC and profit-sharing sources. These provisions are effective for plan years beginning after December 31,2018.; February 9, 2018.; February 9, 2018.