Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.
Last year, the Puerto Rico Department of the Treasury (the “PR Treasury”) issued Administrative Determination Number 17-29 (“AD 17-29”) to provide rules and procedures for allowing distributions from an IRA or a Puerto Rico qualified retirement savings plan following Hurricane María. The purpose of these relaxed tax rules is to temporarily allow Puerto Rico residents impacted by the hurricane to make distributions from qualified retirement plans and IRAs at a preferential tax rate. The PR Treasury subsequently issued Administrative Determination Number 18-02 on January 17, 2018, to clarify certain provisions of AD 17-29.
Pursuant to AD 17-29, distributions from a qualified plan or an IRA on account of Hurricane María could be made from September 20, 2017 until June 30, 2018 (the “eligible period”).
On July 31, 2018, the PR Treasury issued Administrative Determination Number 18-13 (“AD 18-13”) extending the eligible period until November 30, 2018 to make eligible distributions pursuant to AD 17-29 and 18-02. All other provisions under AD 17-29 and AD 18-02 remain in effect.
Eligible Distributions Made in the Extension Period but Prior to the Publication of AD 18-13
Pursuant to AD 18-13, eligible distributions received between July 1, 2018 and the date of the publication of AD 18-13 (the “special period”) may be considered eligible distributions on account of Hurricane María, to the extent such distributions comply with the requirements established under AD17-29, 18-02, and AD 18-13.
Distributions from Qualified Plans
Distributions from qualified plans during the special period may be considered eligible distributions if the following two conditions are satisfied:
- The participant submits to the plan administrator the sworn statement required pursuant to AD 17-29 and AD 18-02, no later than September 28, 2018, or any subsequent date that the plan administrator establishes for such purposes.
- The tax withholding has been made and deposited with the PR Treasury for at least 10% of the taxable portion of the distributed amount.
Distributions from IRA Accounts and Non-Deductible IRA Accounts
Distributions from IRA accounts and non-deductible IRA accounts during the special period may be considered eligible distributions, to the extent the beneficiary of the account submits the sworn statement required by AD 17-29 and AD 18-02, no later than September 28, 2018, or any subsequent date established by the financial institution or the insurer for such purposes.
In accordance with AD 18-13, if no tax was withheld at the time the distribution was made, the eligible individual must provide to the plan administrator or to the recordkeeper of the plan (or to the financial institution or insurer, if the distribution was from an IRA), the amount that should have been withheld pursuant to AD 17-29 and AD 18-02, along with a request for distribution and the sworn statement required by the PR Treasury guidance. In turn, the participating employer, plan administrator or record-keeper of the plan (again, in the case of an IRA account, the financial institution or insurer) must remit such payment to the PR Treasury no later than October 15, 2018. Such amount will be considered a withholding attributable to the month of September 2018, and will not be subject to interests, surcharges or penalties.
Eligible individuals may request a refund on their income tax return corresponding to 2018 for any amount withheld that exceeded the amount provided under AD 17-29 and AD 18-02.