Retirement Plan Disaster Assistance May Be Available for Ohio Tornadoes

The Federal Emergency Management Agency (FEMA) issued a disaster declaration on May 2, 2024, for Ohio tornadoes, for the incident period of March 14, 2024.

Hardship Distributions from Employer Plans

Employers with qualified retirement plans may allow participants to take hardship distributions if they have incurred expenses and losses because of a FEMA-declared disaster, and their principal residence or place of employment at the time of the disaster is located in an area designated by FEMA as eligible for individual disaster assistance.

If the employer permits hardship distributions for expenses and losses related to a federally declared disaster, participants can check fema.gov/locations to determine if they are located in a disaster area designated for individual assistance.

Qualified Disaster Recovery Distributions

Penalty-free qualified disaster recovery distributions, of up to $22,000 per FEMA-declared disaster, from a qualified pension, profit-sharing, or stock bonus plan (including a 401(k) plan), qualified annuity plan, tax-sheltered annuity contract, governmental 457 deferred compensation plan, Traditional IRA, SEP plan, SIMPLE plan, Roth IRA, or the federal Thrift Savings Plan may be permitted if requirements are met. Individuals may include the amount distributed in their gross income over a three-year period; they may also repay the amount distributed back into the qualified plan or IRA at any time within a three-year period.

Permissible distributions include any distribution made on or after the first day of the incident period and before the date that is 180 days after the latest of the first day of the incident period or the declaration date, made to any individual whose principal place of abode is in the disaster area during the incident period, and has sustained an economic loss because of the disaster.

Recontribution of Qualified Home Purchase Distribution

Qualified home purchase distributions – 401(k) and 403(b) hardship distributions and IRA qualified first-time homebuyer distributions – received between 180 days before the first day of the incident period and 30 days after the last day of the incident period that were to be used to purchase or construct a principal place of abode and were not because of the disaster, may be recontributed to a qualified pension, profit-sharing, or stock bonus plan (including a 401(k) plan), qualified annuity plan, tax-sheltered annuity contract, governmental 457 deferred compensation plan, Traditional IRA, SEP plan, SIMPLE plan, Roth IRA, or the federal Thrift Savings Plan. The recontribution must be made between the first day of the incident period and 180 days after the latest of the first day of the incident period or the declaration date.

Employer Plan Loan Relief

Employer plans permitting participant loans may permit qualified individuals to request a loan of up to the lesser of $100,000 or their vested account balance and delay loan repayments for up to one year. The increased loan limits are permitted beginning on the latest of 1) the first day of the incident period or 2) the declaration date and ending on the day that is 180 days after the beginning date. Loan repayment delays are permitted for outstanding loans on or after the latest of the first day of the incident period or the declaration date, if the payment due date occurs between the first day of the incident period and 180 days after last day of incident period. The IRS is anticipated to release additional guidance regarding this permissible loan relief at a future date.

Additional IRS Deadline Relief May Be Provided Later

The IRS may also issue relief related to this disaster for certain tax-related deadlines. Additional information can be found at the IRS Tax Relief in Disaster Situations website and will be announced here if such relief is granted.

Taxpayers should review IRS Form 8915-F, Qualified Disaster Retirement Plan Distributions and Repayments and its instructions, in addition to consulting with their tax advisor to understand the impact of the various disaster related options on their own situation.