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.
Bill: S.2583 | Sponsor: Sen. Cassidy, Bill (R-LA)
Policy area: Taxation

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.

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

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

SECTION 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) of the 
        Internal Revenue Code of 1986 is amended by adding at the end 
        the following new subparagraph:
                    ``(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' means any distribution made--
                            ``(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' means 
                        any group treated as a single employer under 
                        subsection (b), (c), (m), or (o) of section 
                        414.
                            ``(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' means any disaster with respect to which a 
                major disaster has been declared by the President under 
                section 401 of the Robert T. Stafford Disaster Relief 
                and Emergency Assistance Act after December 31, 2020.
                    ``(F) Other definitions.--For purposes of this 
                paragraph and paragraph (8)--
                            ``(i) Qualified disaster area.--
                                    ``(I) In general.--The term 
                                `qualified disaster area' means, with 
                                respect to any qualified disaster, the 
                                area with respect to which the major 
                                disaster was declared under the Robert 
                                T. Stafford Disaster Relief and 
                                Emergency Assistance Act.
                                    ``(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' means, with respect to any qualified 
                        disaster, the period specified by the Federal 
                        Emergency Management Agency as the period 
                        during which such disaster occurred.
                            ``(iii) Applicable date.--The term 
                        `applicable date' means the latest of--
                                    ``(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' shall have the 
                        meaning given such term by section 
                        402(c)(8)(B).
                    ``(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) 
        of the Internal Revenue Code of 1986, as added by this 
        subsection) for which is after December 27, 2020.
    (b) Recontributions of Withdrawals for Home Purchases.--
            (1) Individual retirement plans.--Paragraph (8) of section 
        72(t) of the Internal Revenue Code of 1986 is amended by adding 
        at the end the following new subparagraph:
                    ``(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' means any 
                        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' 
                        means, in the case of a principal residence in 
                        a qualified disaster area with respect to any 
                        qualified disaster, 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 applicable date with 
                        respect to such disaster.''.
            (2) Qualified plans.--Subsection (c) of section 402 of the 
        Internal Revenue Code of 1986 is amended by adding at the end 
        the following new paragraph:
            ``(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' means any 
                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', and `incident 
                        period' have the meaning given such terms under 
                        section 72(t)(11), and
                            ``(ii) the term `applicable period' has the 
                        meaning given such term under section 
                        72(t)(8)(F).''.
            (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) 
        of the Internal Revenue Code of 1986, as added by subsection 
        (a)) for which is after December 27, 2020.
    (c) Loans From Qualified Plans.--
            (1) In general.--Subsection (p) of section 72 of the 
        Internal Revenue Code of 1986 is amended by adding at the end 
        the following new paragraph:
            ``(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' for 
                        `$50,000', and
                            ``(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' for `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' means any 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', and `incident period' 
                                have the meaning given such terms under 
                                subsection (t)(11), and
                                    ``(II) the term `applicable period' 
                                has the meaning given such term under 
                                subsection (t)(8).''.
            (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) of the Internal Revenue Code of 1986, 
                        as added by paragraph (1)) during the 
                        applicable period (as defined in such section 
                        72(p)(6)) in compliance with section 72(p)(6) 
                        of such Code; or
                            (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) 
        of the Internal Revenue Code of 1986, as added by subsection 
        (a)) for which is after December 27, 2020.
    (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.
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