EXTENSION OF TERM TO WITHDRAW FUNDS FROM RETIREMENT PLANS AND IRA ACCOUNTS DUE TO THE PASSAGE OF HURRICANE MARIA

 

In order to help Puerto Rico residents compensate cash flow problems caused by the unexpected expenses due to the passing of hurricanes Irma and Maria over the Island, the Governor of Puerto Rico issued Executive Order No. OE-2017-67 (“OE-2017-67”) to allow them to withdraw savings with preferential tax rates from some accounts.  These include both retirement plans established by employers of the private sector qualified under Section 1081.01 of the Code; and to individual retirement accounts (IRA), as established under Section 1081.02 of the Code.

However, conscious that even after ten (10) months of the catastrophe Puerto Rico is still under a state of emergency and recovery, the Treasury Department (TD) issued Administrative Determination No. 18-13 to extend the Eligible Period on which residents may make Eligible Distributions.  The new Eligible Period runs from September 20, 2017 to November 30, 2018.

To be eligible for an Eligible Distribution, individuals must comply with the previously established requisites.  The maximum amount of withdrawals for all Eligible Distributions to be made by an individual during the Eligible Period cannot exceed one hundred thousand dollars ($100,000).

Distributions from Retirement Plans

Distributions from Retirement Plans received from July 1, 2018, and the date of issue of Administrative Determination No. 18-13 could be considered an Eligible Distribution provided that:

  1. The beneficiary presents a sworn statement to the administrator of the plan no later than September 28, 2018, or on the closing date established by the administrator of the Plan or employer; and
  2. The ten (10) percent withholding on the taxable portion has been made and sent to the TD.

Distributions from IRA Accounts and Non-deductible IRA Accounts

IRA Accounts and Non-deductible IRA Accounts received from July 1, 2018 and the date of issue of Administrative Determination No. 18-13 could be considered an Eligible Distribution provided that the beneficiary presents a sworn statement no later than September 28, 2018 or on the closing date established by the financial institution or insurer.

Withholding at Source

If at the moment the distribution is received no withholding was made, the Eligible Individual must pay either to the employer or administrator of the retirement plan or to the financial institution that carries the IRA account the amount due no later than September 28, 2018.

The employer, administrator, or service provider of the retirement plan or the financial institution that carries the IRA account that receives such payment must send it to the Treasury Secretary no later than October 15, 2018.  This amount will be credited to the month of September, 2018 and will not be subject to interests, surcharges, or penalties if it is deposited on the due date.  Such payment will be considered as the amount of the withholding that should have been made at the moment of the distribution.

If the amount retained exceeds the percent established, the Eligible Individual may request the excess as a refund on his 2018 Tax Return.  On the other hand, Eligible Distributions from IRA accounts for which a penalty was imposed according to the Code, the penalty will be informed as a withholding at source on Eligible Distributions and thus the Eligible Individual may include it as part of the withholding from the Eligible Distribution.

The employer, administrator, or service provider of the retirement plan or the financial institution that carries the IRA account must inform the Eligible Distributions and the taxes retained at source, including any penalty on an IRA account on Form 480.7 (Informative Declaration-IRA Account) or Form 480.7C (Informative Declaration-Retirement Plans and Annuities), for the year 2018.

 

NOTE: We remind you that TCG is available to clarify any doubts, bring you detailed information, and assist you with any action to be taken with this regard.

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