A bill to amend the Internal Revenue Code of 1986 to provide for rules for the use of retirement funds in connection with federally declared disasters.

To amend the Internal Revenue Code of 1986 to provide for rules for the use of retirement funds in connection with federally declared disasters. 1. Special rules for use of retirement funds in connection with qualified federally declared disasters (a) Tax-Favored withdrawals from retirement plans (1) In general Paragraph (2) of section 72(t) (I) Distributions from retirement plans in connection with federally declared disasters Any qualified disaster recovery distribution. . (2) Qualified disaster recovery distribution Section 72(t) of such Code is amended by adding at the end the following new paragraph: (11) Qualified disaster recovery distribution For purposes of paragraph (2)(I)— (A) In general Except as provided in subparagraph (B), the term qualified disaster recovery distribution (i) on or after the first day of the incident period of a qualified disaster and before the date that is 180 days after the applicable date with respect to such disaster, and (ii) to an individual whose principal place of abode at any time during the incident period of such qualified disaster is located in the qualified disaster area with respect to such qualified disaster and who has sustained an economic loss by reason of such qualified disaster. (B) Aggregate dollar limitation (i) In general For purposes of this subsection, the aggregate amount of distributions received by an individual which may be treated as qualified disaster recovery distributions with respect to any qualified disaster shall not exceed the excess (if any) of— (I) $100,000, over (II) the sum of aggregate amounts treated as qualified disaster recovery distributions with respect to such qualified disaster received by such individual. (ii) Treatment of plan distributions If a distribution to an individual would (without regard to clause (i)) be a qualified disaster recovery distribution, a plan shall not be treated as violating any requirement of this title merely because the plan treats such distribution as a qualified disaster recovery distribution, unless the aggregate amount of such distributions from all plans maintained by the employer (and any member of any controlled group which includes the employer) to such individual exceeds $100,000 with respect to the same qualified disaster. (iii) Controlled group For purposes of clause (ii), the term controlled group (iv) Special rule for individuals affected by more than one disaster The limitation of clause (i) shall be applied separately with respect to distributions made with respect to each qualified disaster. (C) Amount distributed may be repaid (i) In general Any individual who receives a qualified disaster recovery distribution may, at any time during the 3-year period beginning on the day after the date on which such distribution was received, make one or more contributions in an aggregate amount not to exceed the amount of such distribution to an eligible retirement plan of which such individual is a beneficiary and to which a rollover contribution of such distribution could be made under section 402(c), 403(a)(4), 403(b)(8), 408(d)(3), or 457(e)(16), as the case may be. (ii) Treatment of repayments of distributions from eligible retirement plans other than iras For purposes of this title, if a contribution is made pursuant to clause (i) with respect to a qualified disaster recovery distribution from a plan other than an individual retirement plan, then the taxpayer shall, to the extent of the amount of the contribution, be treated as having received the qualified disaster recovery distribution in an eligible rollover distribution (as defined in section 402(c)(4)) and as having transferred the amount to the eligible retirement plan in a direct trustee to trustee transfer within 60 days of the distribution. (iii) Treatment of repayments for distributions from iras For purposes of this title, if a contribution is made pursuant to clause (i) with respect to a qualified disaster recovery distribution from an individual retirement plan, then, to the extent of the amount of the contribution, the qualified disaster recovery distribution shall be treated as a distribution described in section 408(d)(3) and as having been transferred to the eligible retirement plan in a direct trustee to trustee transfer within 60 days of the distribution. (D) Income inclusion spread over 3-year period (i) In general In the case of any qualified disaster recovery distribution, unless the taxpayer elects not to have this subparagraph apply for any taxable year, any amount required to be included in gross income for such taxable year shall be so included ratably over the 3-taxable year period beginning with such taxable year. (ii) Special rule For purposes of clause (i), rules similar to the rules of subparagraph (E) of section 408A(d)(3) shall apply. (E) Qualified disaster For purposes of this paragraph and paragraph (8), the term qualified disaster (F) Other definitions For purposes of this paragraph and paragraph (8)— (i) Qualified disaster area (I) In general The term qualified disaster area (II) Exceptions Such term shall not include any area which is a qualified disaster area solely by reason of section 301 of the Taxpayer Certainty and Disaster Tax Relief Act of 2020. (ii) Incident period The term incident period (iii) Applicable date The term applicable date (I) the date of the enactment of this paragraph, (II) the first day of the incident period with respect to the qualified disaster, or (III) the date of the disaster declaration with respect to the qualified disaster. (iv) Eligible retirement plan The term eligible retirement plan (G) Special rules (i) Exemption of distributions from trustee to trustee transfer and withholding rules For purposes of sections 401(a)(31), 402(f), and 3405, qualified disaster recovery distributions shall not be treated as eligible rollover distributions. (ii) Qualified disaster recovery distributions treated as meeting plan distribution requirements For purposes this title, a qualified disaster recovery distribution shall be treated as meeting the requirements of sections 401(k)(2)(B)(i), 403(b)(7)(A)(ii), 403(b)(11), and 457(d)(1)(A). . (3) Effective date The amendments made by this subsection shall apply to distributions with respect to disasters the incident beginning date (as defined in section 72(t)(11)(F)(i) (b) Recontributions of withdrawals for home purchases (1) Individual retirement plans Paragraph (8) of section 72(t) (F) Recontributions (i) General rule (I) In general Any individual who received a qualified distribution may, during the applicable period, make one or more contributions in an aggregate amount not to exceed the amount of such qualified distribution to an eligible retirement plan (as defined in section 402(c)(8)(B)) of which such individual is a beneficiary and to which a rollover contribution of such distribution could be made under section 402(c), 403(a)(4), 403(b)(8), or 408(d)(3), as the case may be. (II) Treatment of repayments Rules similar to the rules of clauses (ii) and (iii) of paragraph (11)(C) shall apply for purposes of this subsection. (ii) Qualified distribution For purposes of this subparagraph, the term qualified distribution (I) which is a qualified first-time homebuyer distribution, (II) which was to be used to purchase or construct a principal residence in a qualified disaster area, but which was not so used on account of the qualified disaster with respect to such area, and (III) which was received during the period beginning on the date which is 180 days before the first day of the incident period of such qualified disaster and ending on the date which is 30 days after the last day of such incident period. (iii) Applicable period For purposes of this subparagraph, the term applicable period . (2) Qualified plans Subsection (c) of section 402 (12) Recontributions of withdrawals for home purchases (A) General rule (i) In general Any individual who received a qualified distribution may, during the applicable period, make one or more contributions in an aggregate amount not to exceed the amount of such qualified distribution to an eligible retirement plan (as defined in paragraph (8)(B)) of which such individual is a beneficiary and to which a rollover contribution of such distribution could be made under subsection (c) or section 403(a)(4), 403(b)(8), or 408(d)(3), as the case may be. (ii) Treatment of repayments Rules similar to the rules of clauses (ii) and (iii) of section 72(t)(11)(C) shall apply for purposes of this subsection. (B) Qualified distribution For purposes of this paragraph, the term qualified distribution (i) described in section 401(k)(2)(B)(i)(IV), 403(b)(7)(A)(ii) (but only to the extent such distribution relates to financial hardship), or 403(b)(11)(B), (ii) which was to be used to purchase or construct a principal residence in a qualified disaster area, but which was not so used on account of the qualified disaster with respect to such area, and (iii) which was received during the period beginning on the date which is 180 days before the first day of the incident period of such qualified disaster and ending on the date which is 30 days after the last day of such incident period. (C) Definitions For purposes of this paragraph— (i) the terms qualified disaster qualified disaster area incident period (ii) the term applicable period . (3) Effective date The amendments made by this subsection shall apply to distributions with respect to disasters the incident beginning date (as defined in section 72(t)(11)(F)(i) (c) Loans from qualified plans (1) In general Subsection (p) of section 72 (6) Increase in limit on loans not treated as distributions (A) In general In the case of any loan from a qualified employer plan to a qualified individual made during the applicable period— (i) clause (i) of paragraph (2)(A) shall be applied by substituting $100,000 $50,000 (ii) clause (ii) of such paragraph shall be applied by substituting the present value of the nonforfeitable accrued benefit of the employee under the plan one-half of the present value of the nonforfeitable accrued benefit of the employee under the plan (B) Delay of repayment In the case of a qualified individual (with respect to any qualified disaster) with an outstanding loan on or after the applicable disaster date from a qualified employer plan— (i) if the due date pursuant to subparagraph (B) or (C) of paragraph (2) for any repayment with respect to such loan occurs during the period beginning on the first day of the incident period of such qualified disaster and ending on the date which is 180 days after the last day of such incident period, such due date may be delayed for 1 year, (ii) any subsequent repayments with respect to any such loan may be appropriately adjusted to reflect the delay in the due date under clause (i) and any interest accruing during such delay, and (iii) in determining the 5-year period and the term of a loan under subparagraph (B) or (C) of paragraph (2), the period described in clause (i) may be disregarded. (C) Definitions For purposes of this paragraph— (i) Qualified individual The term qualified individual (I) whose principal place of abode at any time during the incident period of any qualified disaster is located in the qualified disaster area with respect to such qualified disaster, and (II) who has sustained an economic loss by reason of such qualified disaster. (ii) Applicable period The applicable period with respect to any disaster is the period— (I) beginning on the applicable date with respect to such disaster, and (II) ending on the date that is 180 days after such applicable date. (iii) Other terms For purposes of this paragraph— (I) the terms applicable date qualified disaster qualified disaster area incident period (II) the term applicable period . (2) Hold harmless (A) In general A person shall not be treated as having violated the provisions of title I of the Employee Retirement Income Security Act of 1974 solely because— (i) the person made a plan loan to a qualified individual (as defined in section 72(p)(6) (ii) a qualified individual (as so defined) delayed making a plan loan repayment in compliance with section 72(p)(6) of such Code. (B) Prohibited transactions A person shall be treated as being exempt from the requirements of section 406 of the Employee Retirement Income Security Act of 1974 pursuant to subparagraphs (A) and (E) of section 408(b)(1) of such Act if the person meets the requirements of clause (i) or (ii) of subparagraph (A). (3) Effective date The amendment made by paragraph (1) shall apply to loans made with respect to disasters the incident beginning date (as defined in section 72(t)(11)(F)(i) (d) Provisions relating to plan amendments (1) In general If this subsection applies to any amendment to any plan or annuity contract, such plan or contract shall be treated as being operated in accordance with the terms of the plan during the period described in paragraph (2)(B)(i). (2) Amendments to which subsection applies (A) In general This subsection shall apply to any amendment to any plan or annuity contract which is made— (i) pursuant to any amendment made by this section, or pursuant to any regulation issued by the Secretary or the Secretary of Labor under any amendment made by this section, and (ii) on or before the last day of the second calendar year beginning after the date of the enactment of this Act, or such later date as the Secretary may prescribe. In the case of a governmental plan (as defined in section 414(d)), clause (ii) shall be applied by substituting the date which is 2 years after the date otherwise applied under clause (ii). (B) Conditions This subsection shall not apply to any amendment unless— (i) during the period— (I) beginning on the date that the amendments made by this section, or any regulation described in subparagraph (A)(i), take effect (or in the case of a plan or contract amendment not required by amendments made by this section or such regulation, the effective date specified by the plan), and (II) ending on the date described in subparagraph (A)(ii) (or, if earlier, the date the plan or contract amendment is adopted), the plan or contract is operated as if such plan or contract amendment were in effect; and (ii) such plan or contract amendment applies retroactively for such period.

Summary: This bill allows penalty-free distributions from tax-exempt retirement plans for a federally declared disaster (i.e., a qualified disaster recovery distribution). The bill defines qualified disaster recovery distribution as any distribution within a 180 day period after a disaster declaration that is made to an individual whose principal residence is located in a qualified disaster area (an area for which a major disaster has been declared) and who has sustained an economic loss due to the disaster. The bill sets forth rules for the recontribution of withdrawals from a plan for first-time home purchases or for purchases or construction of a principal residence in a disaster area, and increases the limit on loans from a qualified employer plan that an individual may take in lieu of a distribution.