28 January 2022

Bill Seeks to Ease Access to 401(k) Funds After Natural Disasters

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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 age 59½.

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 disaster.

"The ARA strongly supports permanent retirement plan tax relief measures that would automatically apply once a presidential disaster declaration is issued," it said.

Click here for the original article.

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