by The recently-signed Bipartisan Budget Act of 2018 (the “Act”) expands access to 401(k) and other retirement plan savings for those impacted by the California wildfires that occurred late last year in federally-declared disaster areas including Santa Barbara and Ventura counties. The expanded access is available to individuals whose principal residence is or was located in the “California wildfire disaster area” at any time between October 8, 2017 to December 31, 2017 and who sustained an economic loss – whether personal or business – as a result of the wildfires, and whose employer agrees to amend their plan by December 31, 2019 to include the special rules (retroactive to 2018). Those taking IRA withdrawals should check with their IRA custodians or trustees re: availability of the new measures.
As to whether the relief extends to those affected by flooding, mudflows, and debris flows directly related to the wildfires, there is some uncertainty in the wording of the Act. As mentioned above, eligible individuals are determined based on their residence on or before December 31, 2017, a date which preceded the January 9, 2018 flooding, mud and debris flow. However, the Act defines “California wildfire disaster area” as the area subject to Presidential disaster declarations made between January 1, 2017 through January 18, 2018. The original California wildfire disaster declaration was made January 2, 2018, and was amended on January 10 and 15 to incorporate damage from flooding, mudslides and debris flow directly related to the wildfires, which would suggest that those related types of damage would come within the scope of the relief. More guidance from the government would be helpful on this point.
There are three main types of expanded access:
- Special withdrawal rules
-Eligible individuals may take plan or IRA withdrawals of up to $100,000 without application of the 10% penalty tax that ordinarily applies before age 59 ½. Although California’s Franchise Tax Board generally follows federal disaster relief, a California early withdrawal penalty of 2.5% may apply, so check with your CPA. The withdrawal must take place between October 8, 2017 and December 31, 2018. The tax impact of the withdrawal may be spread over up to 3 years from the date of the withdrawal, or tax may be avoided entirely by repaying the full amount to the plan, or an IRA, within the same 3 year period.
- Retirement plan loan relief
– An extension of up to one year applies to repayments due on a plan loan that was outstanding on or after October 8, 2017. The one year extension does not cause the loan to exceed the maximum five-year repayment period. Interest continues to accrue during the extension.
– New plan loans may be taken out on or after Feb. 9, 2018, through Dec. 31, 2018 in an amount up to the lesser of $100,000, or 100% of the vested retirement plan account (increased from $50,000 or 50%). The limit is reduced by an amount equal to the highest outstanding balance of all loans during the prior twelve months.
- Repayment of amounts taken out to buy or build a home in the disaster area
–Persons who took hardship withdrawals from their plans after March 31, 2017 and before January 15, 2018 in order to buy or build a personal residence can re-deposit their withdrawals, or roll them to an IRA, by June 30, 2018, if the purchase or construction could not go forward as a result of the wildfires. The same relief is available to first-time homebuyer IRA withdrawals made during this time.
In earlier guidance, the IRS extended the filing deadline for personal and business income taxes by two weeks for those affected by the California wildfires, and California’s Franchise Tax Board granted equivalent relief for state returns. The new deadline for personal returns is April 30, 2018.
Note: a version of this post was published in the Pacific Coast Business Times on February 23, 2018.
E is for ERISA 
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