Treasury Department Issues Post-Hurricane Rules For Qualified Retirement Plan And IRA Distributions And Loans

Author:Ms Ana María Bigas-Kennerley
Profession:Littler Mendelson
 
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On November 15, 2017, the Puerto Rico Department of the Treasury (the "PR Treasury") issued Administrative Determination Number 17-29 ("AD 17-29") to provide special rules and procedures applicable to distributions from qualified retirement plans and individual retirement accounts ("IRAs") following Hurricane María.

As previously discussed, on November 13, 2017, the Governor of Puerto Rico issued Executive Order 2017-067 ("EO 2017-067") authorizing the Secretary of the PR Treasury to establish tax rules to temporarily allow Puerto Rico residents to make distributions from qualified retirement plans and IRAs at a preferential tax rate.

The PR Treasury, in accordance with EO 2017-067, issued AD 17-29 establishing such rules and procedures. The following summarizes the most important aspects of the administrative determination.

Eligible Distributions - These are payments or distributions from a qualified retirement plan or an IRA made from September 20, 2017 to June 30, 2018, the Eligible Period that an Eligible Individual has requested to cover Eligible Expenses.

Eligible Distributions from a qualified plan can be made through total distributions (i.e., lump sum distributions) or partial distribution(s) on account of - hardship. Annuities and installment payments will not be considered Eligible Distributions.

The penalty for early withdrawal imposed by the PR Code will not apply to Eligible Distributions from IRAs. However, the individual may be subject to a penalty for early withdrawal imposed by the financial institution or insurance company under the IRA's terms.

AD 17-29 also establishes what supporting documentation must be included with the request for an Eligible Distribution.

Eligible Individual - An Eligible Individual is a Puerto Rico resident during taxable years 2017 and 2018. Only Eligible Individuals may make Eligible Distributions.

Eligible Expenses - These are expenses an eligible individual incurs to compensate for losses or damages suffered as a result of the passage of Hurricane María and any unforeseen and extraordinary expenses needed to cover basic needs. Eligible Expenses include, but are not limited, to: repair of losses of a residence or motor vehicle, payment of medical expenses, replacement or repair of furniture, purchase of food and gas, payments for purchase or repair of power generators, and lodging and meal expenses due to total or partial destruction of principal residence incurred in the wake of Hurricane...

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