The IRS has provided answers to frequently asked questions regarding rules for distributions from retirement plans, IRAs, and retirement plan loans for individual taxpayers impacted by federally declared major disasters. This guidance is in response to the SECURE 2.0 Act, which made changes to existing laws related to retirement plans and was signed into law by President Biden in December 2022 as part of the Consolidated Appropriations Act of 2023. Some of the changes included automatic enrollment for eligible employees in retirement plans, allowing Roth account matches, adjustments to required minimum distributions, and the ability to make qualified charitable distributions and student loan matching contributions.
One significant change brought about by the SECURE 2.0 Act is the treatment of retirement accounts and loans following a qualified disaster. Section 331 of the Act allows qualified individuals affected by a qualified disaster to take distributions or loans from their retirement plans with flexibility. This includes expanded distribution and tax relief, the ability to repay distributions for a home purchase or construction, and increased maximum loan amounts under eligible retirement plans. The incident period for a qualified disaster is specified by FEMA and may cover various types of economic losses.
It is important to note that employers are not required to allow for qualified disaster recovery distributions or loans from retirement plans, but qualified individuals can treat distributions as such on their federal income tax returns if they meet the requirements. The IRS has issued FAQs to provide guidance on these topics, but taxpayers should be aware that FAQs are not official regulations and may be updated or modified upon further review. Taxpayers can rely on Treasury Regulations and sub-regulatory guidance published in the Internal Revenue Bulletin for official guidance.
Despite the limitations of FAQs, the IRS states that taxpayers who reasonably and in good faith rely on the information provided in them will not be subject to penalties for underpayment of tax. These FAQs regarding the SECURE 2.0 Act have been announced in IR-2024-132 and further detailed in Fact Sheet 2024-19. It is advisable to consult with a tax professional for clarification on any questions regarding retirement plan distributions, loans, and relief options for individuals affected by qualified disasters. The IRS continues to provide guidance and updates on these topics to assist taxpayers in navigating the complex rules and regulations surrounding retirement plans.