A bipartisan bill that would allow individuals affected by
federally declared natural disasters to access without penalty their retirement
plans, like 401(k)s or individual retirement accounts, to cover emergency costs
has been introduced in the Senate.
The bill, introduced Tuesday by Sens. Bill Cassidy, R-La.,
and Bob Menendez, D-N.J., permanently provides tax relief measures that would
automatically apply once a presidential disaster declaration is issued.
While the president can issue a disaster declaration and
trigger Federal Emergency Management Agency's authorization to act immediately,
Congress usually takes weeks or months to act, the senators said in a news
release. Typically, Congress steps in to waive penalties to pay for costs
incurred by a given natural disaster, but not always quickly enough.
"When disaster hits, families and business owners
should not be penalized when using their savings while trying to get back on
their feet," Mr. Cassidy said in the news release. "Saving for
retirement is hard enough, let alone during disasters."
The bill would allow a "qualified disaster recovery
distribution" up to 180 days after a disaster is declared to an individual
whose main home is in the federally declared disaster area and who has
sustained an economic loss as a result of the disaster. Such individuals would
also avoid the 10% early withdrawal penalty that apply to participants under
Congress has passed legislation with similar aims in recent
years, including the Disaster Tax Relief and Airport and Airway Extension Act
of 2017, which made it easier for affected retirement plan participants to
access their retirement funds to recover from hurricanes Harvey, Irma and
Maria, which all occurred in 2017.
The American Retirement Association endorsed the bill and
said in the news release that because there are not permanent rules on the use
of retirement funds by individuals impacted by natural disasters, victims are
currently dependent upon congressional action after the occurrence of each
"The ARA strongly supports permanent retirement plan
tax relief measures that would automatically apply once a presidential disaster
declaration is issued," it said.
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