Enhancing Emergency and Retirement Savings Act of 2021
Bill: S.1870 | Sponsor: Sen. Lankford, James (R-OK)
Policy area: Taxation

Summary:
Enhancing Emergency and Retirement Savings Act of 2021
This bill permits penalty-free distributions, up to $1,000, from tax-exempt retirement plans for emergency personal expenses, limited to one distribution in a calendar year. The bill allows repayment to plans of such distributions over a three-year period.

To amend the Internal Revenue Code of 1986 to provide for penalty-free 
 withdrawals from retirement accounts for certain emergency expenses, 
                        and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Enhancing Emergency and Retirement 
Savings Act of 2021''.

SEC. 2. WITHDRAWALS FOR CERTAIN EMERGENCY EXPENSES.

    (a) In General.--Paragraph (2) of section 72(t) of the Internal 
Revenue Code of 1986 is amended by adding at the end the following new 
subparagraph:
                    ``(I) Distributions for certain emergency 
                expenses.--
                            ``(i) In general.--Any emergency personal 
                        expense distribution.
                            ``(ii) Annual limitation.--Not more than 1 
                        distribution per calendar year may be treated 
                        as an emergency personal expense distribution 
                        by any individual.
                            ``(iii) Dollar limitation.--The amount 
                        which may be treated as an emergency personal 
                        expense distribution by any individual in any 
                        calendar year shall not exceed the lesser of 
                        $1,000 or an amount equal to the excess of--
                                    ``(I) the individual's total 
                                nonforfeitable accrued benefit under 
                                the plan (the individual's total 
                                interest in the plan in the case of an 
                                individual retirement plan), determined 
                                as of the date of each such 
                                distribution, over
                                    ``(II) $1,000.
                            ``(iv) Emergency personal expense 
                        distribution.--For purposes of this 
                        subparagraph, the term `emergency personal 
                        expense distribution' means any distribution 
                        from an applicable eligible retirement plan (as 
                        defined in subparagraph (H)(vi)(I)) to an 
                        individual for purposes of meeting 
                        unforeseeable or immediate financial needs 
                        relating to necessary personal or family 
                        emergency expenses. The administrator of an 
                        applicable eligible retirement plan may rely on 
                        an employee's certification that the employee 
                        satisfies the conditions of the preceding 
                        sentence in determining whether any 
                        distribution is an emergency personal expense 
                        distribution.
                            ``(v) Treatment of plan distributions.--If 
                        a distribution to an individual would (without 
                        regard to clause (iii)) be an emergency 
                        personal expense distribution, a plan shall not 
                        be treated as failing to meet any requirement 
                        of this title merely because the plan treats 
                        the distribution as an emergency personal 
                        expense 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, determined as provided in 
                        subparagraph (H)(iv)(II)) to such individual 
                        exceeds the limitation determined under clause 
                        (iii).
                            ``(vi) Amount distributed may be repaid.--
                                    ``(I) In general.--Any individual 
                                who receives an emergency personal 
                                expense 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 applicable 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) Limitation on contributions 
                                to applicable eligible retirement plans 
                                other than iras.--The aggregate amount 
                                of contributions made by an individual 
                                under subclause (I) to any applicable 
                                eligible retirement plan which is not 
                                an individual retirement plan shall not 
                                exceed the aggregate amount of 
                                emergency personal expense 
                                distributions which are made from such 
                                plan to such individual. Subclause (I) 
                                shall not apply to contributions to any 
                                applicable eligible retirement plan 
                                which is not an individual retirement 
                                plan unless the individual is eligible 
                                to make contributions (other than those 
                                described in subclause (I)) to such 
                                applicable eligible retirement plan.
                                    ``(III) Treatment of repayments of 
                                distributions from applicable eligible 
                                retirement plans other than iras.--If a 
                                contribution is made under subclause 
                                (I) with respect to an emergency 
                                personal expense distribution from an 
                                applicable eligible retirement 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 such distribution in an 
                                eligible rollover distribution (as 
                                defined in section 402(c)(4)) and as 
                                having transferred the amount to the 
                                applicable eligible retirement plan in 
                                a direct trustee to trustee transfer 
                                within 60 days of the distribution.
                                    ``(IV) Treatment of repayments for 
                                distributions from iras.--If a 
                                contribution is made under subclause 
                                (I) with respect to an emergency 
                                personal expense distribution from an 
                                individual retirement plan, then, to 
                                the extent of the amount of the 
                                contribution, such distribution shall 
                                be treated as a distribution described 
                                in section 408(d)(3) and as having been 
                                transferred to the applicable eligible 
                                retirement plan in a direct trustee to 
                                trustee transfer within 60 days of the 
                                distribution.
                            ``(vii) Limitation on subsequent 
                        distributions.--If a distribution is treated as 
                        an emergency personal expense distribution in 
                        any calendar year with respect to a plan, no 
                        amount may be treated as such a distribution in 
                        any subsequent calendar year with respect to 
                        such plan unless--
                                    ``(I) such previous distribution is 
                                fully repaid pursuant to clause (vi) to 
                                such plan, or
                                    ``(II) the aggregate of the 
                                elective deferrals and employee 
                                contributions to the plan (the total 
                                amounts contributed to the plan in the 
                                case of an individual retirement plan) 
                                subsequent to such previous 
                                distribution is at least equal to the 
                                amount of such previous distribution 
                                which has not been so repaid.
                            ``(viii) Special rules.--Rules similar to 
                        the rules of subclauses (II) and (IV) of 
                        subparagraph (H)(vi) shall apply to any 
                        emergency personal expense distribution.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to distributions made after December 31, 2021.
                                 <all>