And typically, hardship distributions also come with a six-month ban on new contributions. The IRS is waiving that. To qualify for relief, the agency says distributions must be made between Aug. 23, 2017 and Jan. 31, 2018.
Loans generally come with no tax implications if they are repaid within five years. However, as with early withdrawals, loans remove money from investments intended to grow and provide income to you in retirement.
The IRS also said it is relaxing certain administrative rules to let people access their 401(k) funds “with a minimum of red tape.”
Tapping that 401(k) plan money can comes at a cost, however. Certified Financial Planner Mark McClanahan said that although taking money early from your retirement account is far from ideal, some Harvey victims will find themselves relying on it.
“There are people who are going to have dramatic expenses related to this storm,” said McClanahan, a managing director at Dallas-based RGT Wealth Advisors. “Just make sure you don’t have better options before taking money from your 401(k). It’s not free money.”