Disaster Relief for Retirement Plans

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The SECURE 2.0 Act introduces permanent distribution and loan relief for federally declared major disasters occurring on or after January 26, 2021. This new relief aims to facilitate timely disaster distributions from qualified plans and IRAs without waiting for specific IRS relief.

Relief Categories

The relief covers three main areas for any major disaster, as defined by FEMA:

1. Distributions (Qualified Plans and IRAs):
   • $22,000 special distribution right
   • No 10% early distribution tax
   • Taxation spread over three years
   • Three-year repayment right
2. Plan Loans (Qualified Plans Only):
   • Loan limit increased to the lesser of $100,000 or 100% of the account balance
   • One-year delay in loan repayments
3. Home Purchase (Qualified Plans and IRAs):
   • Repayment option for distributions taken for principal residence purchase or construction
   • Applies to hardship distributions and qualified first-time homebuyer distributions
   • Must be repaid within 180 days after the start of the incident period

Eligibility and Self-Certification

Eligible participants include those with a principal residence in the disaster area during the incident period and who sustained an economic loss due to the disaster. Self-certification is acceptable unless there is actual knowledge to the contrary. Tax relief can still be claimed on the participant’s tax return (Form 8915-F) even if the plan does not offer the relief.

Plan/IRA Amendment

If plan sponsors offer this optional relief, no amendment is needed until December 31, 2026. The IRS has issued an updated Defined Contribution Listing of Required Modifications (LRM) with sample language that could be useful for plan documents.

Action Steps

• Plan Sponsors:
  • Review procedures for compliance with distribution rules, rollover rules, and Form 1099-R reporting and withholding rules
  • Add this item to the pending amendment list

• IRA Providers:
  • Update operational procedures
  • Communicate the new design feature to participants

These steps ensure that the relief provisions are correctly implemented and communicated, helping participants take advantage of the new options provided by the SECURE 2.0 Act.

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