Legislation backed by the American Retirement Association that would impose permanent tax relief measures on pension plans following a disaster declared by the President was introduced on December 9.
The bipartite Disaster Retirement Savings Act, presented by Reps Mike Thompson (D-CA) and Mike Kelly (R-PA), both of whom sit on the House Ways and Means Tax Editorial Board, would help survivors of natural disasters by allowing them to withdraw funds from their retirement accounts. to cover unforeseen and urgent disaster-related costs without incurring fees or penalties.
The tax relief would be triggered automatically if the president issues a federal declaration of disaster.
âSurvivors of natural disasters deserve to know that the federal government is working to help them respond and recover from the onset of the emergency. This is why I am proud to present this important bipartisan legislation which allows residents of disaster areas to withdraw funds from their retirement accounts without penalty or fees to cover emergency expenses such as temporary housing, âsaid Thompson. in a press release.
âAmericans should not be penalized for withdrawing their hard-earned retirement money to cover emergency costs resulting from a natural disaster,â Kelly added. “This bill will provide the resources and peace of mind for people when they really need them.”
Under current law, taxpayers affected by natural disasters may be subject to a 20% withholding tax and 10% early withdrawal tax penalties if they draw on their retirement funds to cover costs. emergency disaster. Congress often acts after the fact to bring relief, but it is not always immediate and it is not a certainty.
The Disaster Retirement Savings Act of 2021 closely follows the disaster relief of pension schemes provided for in previous years in previous legislation. In general, the bill includes a 10% early withdrawal penalty relief for qualifying disaster relief distributions up to $ 100,000 from a qualified pension plan, 403 plan ( b), a 457 (b) plan or an IRA.
In addition, income attributable to an eligible disaster distribution may be included in pro-rated income over three years, and the amount of an eligible disaster distribution may be re-assessed to a qualifying pension plan within three years. year.
A âqualifying disaster distributionâ is defined as any distribution from a qualifying 403 (b) or 457 (b) pension plan made on or after the first day of the qualifying disaster incident period and before 180 days after the applicable period, to a person whose principal place of residence during the period of the incident is located in the disaster area and who has suffered an economic loss as a result of this disaster.
In addition, a plan would not be considered a violation of a requirement of the Code simply because it treats a distribution as an eligible disaster distribution, provided that the total amount of such distributions from plans maintained by the plan. The employer and members of the employer’s controlled group or affiliated service group does not exceed $ 100,000 for each eligible loss.
The legislation also allows compensation for withdrawals from the retirement plan for home purchases canceled due to qualifying disasters. In addition, it allows an increase in the limit on loans from $ 50,000 to $ 100,000 that would not be treated as distributions. And people with outstanding loans who reside in a disaster area could delay repaying their loans for up to a year.
The bill has been referred to the House Ways and Means Committee.
Complementary legislation was introduced earlier this year by Sense Bill Cassidy (R-LA) and Bob Menendez (D-NJ), both of whom sit on the Senate Finance Committee. This bill was also approved by the ARA.