As part of its relief package, Congress introduced yesterday a bill that would permit Hurricane Katrina victims to make hardship cash withdrawals or loans from their 401(k)-type plans, even if the provision doesn't currently exist in their plan.
The withdrawal proposal comes from the desks of Senate Finance Committee Chairman Sen. Charles Grassley, R-Iowa, and ranking member Sen. Max Baucus, D-Mon, who worked closely with the IRS and the ASPPA, a leading organization of retirement plan professionals. President Bush is expected to approve the bill when it reaches his desk.
By eliminating paperwork, the IRS would expedite request for the money. The bill would also waive the 10% penalty for early withdrawals and allow plan participants to pay tax on the distributions over a three-year period, officials said. The money must be paid back within five years, however.