Disaster Relief Bill Includes Retirement Plan Distribution and Loan Options


Congress enacted special tax relief to make it easier for retirement plan participants (including IRA owners) to access their retirement funds to recover from disaster losses incurred while living in certain federally declared disaster areas in 2016 and 2017. This disaster relief may allow affected participants to:

  • avoid the 10-percent additional tax on early distributions,
  • include qualified disaster distributions in income over three years,
  • repay distributions within three years,
  • borrow more funds as a plan loan, and
  • repay plan loans over a longer period.

Congress enacted the Disaster Tax Relief and Airport and Airway Extension Act of 2017, to make 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 Tax Cuts and Jobs Act provided more limited relief to plan participants living in 2016 federally declared disaster areas who received plan distributions in either 2016 or 2017. And the Bipartisan Budget Act of 2018 provided relief to the 2017 California wildfire victims that’s similar to relief provided to the 2017 hurricane victims.

Early distributions

Under all three laws, qualified disaster distributions to retirement plan participants are exempt from the 10-percent additional tax on early distributions that may apply to participants under age 59 ½.

Participants taking a qualified disaster distribution can include it in income in equal amounts over three years, beginning with the year that includes the distribution date. Participants may also repay qualified disaster distributions within three years of receiving a distribution by making one or more contributions to an eligible retirement plan. Any repayment is treated as a trustee-to-trustee transfer.

A qualified disaster distribution is an amount up to $100,000 taken by a participant whose main home was in the federally declared disaster area and the distribution was made for:

  • Harvey, after August 22, 2017, and before January 1, 2019;
  • Irma, after September 3, 2017, and before January 1, 2019;
  • Maria, after September 15, 2017, and before January 1, 2019;
  • The 2016 disasters, in either 2016 or 2017; and
  • California wildfires, after October 7, 2017, and before January 1, 2019.

Plan loans

Victims of the 2017 hurricanes and the California wildfires may also be able to borrow more money from their employer-sponsored retirement plan and have more time to pay back the loan. (This relief is not available to victims of 2016 disasters.) A qualified individual can borrow up to the lesser of $100,000 or 100 percent of the account balance, instead of the normal $50,000 and 50-percent limits. Victims may also have an extra year to make payments due on current loans.

Plan amendments

Plan sponsors offering special disaster distributions and loans should amend their plans for these optional provisions. Plan sponsors have until the last day of the plan year beginning on or after January 1, 2019, (January 1, 2018, in the case of 2016 disasters) to amend their plans. Sponsors of governmental plans have two more years to make this amendment.