May 2024 Compliance News Article

Disaster Relief FAQ

The Internal Revenue Service (IRS) issued frequently asked questions (FAQs) intended to provide general rules for distributions and loans from retirement plans and individual retirement arrangements (IRAs) for individuals impacted by federally declared disasters.

Background

Prior to the SECURE 2.0 Act of 2022 (SECURE 2.0) being signed into law on December 29, 2022, Congress, made various forms of distribution and loan relief available to retirement plan participants and IRA owners who have been affected by federally declared disasters on a case-by-case basis. SECURE 2.0 provided ongoing relief for these distributions to any federally declared disaster occurring on or after January 26, 2021.

IRS FAQ

The IRS issued Fact Sheet 2024-19, which includes several questions and answers about SECURE 2.0 federally declared disaster loans and distributions. The fact sheet is intended to provide general information for taxpayers and tax professionals, but it may not be relied upon or used by the IRS to resolve a case.

The FAQ is divided into the following four sections:

General Information
Taxation and reporting of qualified disaster recovery distributions
Repayment of qualified distributions taken for the purpose of purchasing or constructing a principal residence in a qualified disaster area
Loans from certain qualified plans

Noted below are highlights from the FAQ; however, the full list of questions and answers can be found on the IRS website at www.irs.gov:

Examples of economic loss include:
- Loss, damage, or destruction of real or personal property from fire, flooding, looting, vandalism, theft, wind, or other cause,
- Loss related to displacement from the individual’s home, or
- Loss of livelihood due to temporary or permanent layoffs.
It is optional for employers to adopt the expanded distribution and loan rules. However, even if an employer does not treat a distribution as a qualified disaster distribution, an individual may still claim it as such on their federal income tax return if they are a qualified individual and meet the requirements.
Unless there is knowledge to the contrary, plan sponsors or administrators may rely on an individual’s reasonable representations that they qualify for the special treatment for qualified disaster distributions and loans.

The subject matter in this communication is educational only and provided with the understanding that Principal^® is not rendering legal, accounting, investment or tax advice. You should consult with appropriate counsel, financial professionals and other advisors on all matters pertaining to legal, tax, investment or accounting obligations and requirements.

Insurance products and plan administrative services provided through Principal Life Insurance Company^®, a member of the Principal Financial Group^®, Des Moines, IA 50392.

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