Bipartisan legislation introduced in the House yesterday would allow survivors of any federally-declared disaster to tap their qualified retirement funds for up to $100,000 without getting hit with early-withdrawal penalties or fees.
The Disaster Retirement Savings Act of 2021ntroduced by Rep. Mike Thompson (D-Calif.) and Rep. Mike Kelly (R-Penn.) would allow the funds to be used to cover emergency expenses including housing and provides a three-year period for repayment of the withdrawals.
This tax relief would be automatically triggered if the President issues a Federal disaster declaration. The legislation provides “much needed certainty for survivors of natural disasters, such as the fires that have hit Thompson’s district over the past four years, the California lawmaker said in a statement.
“Survivors of natural disaster deserve to know that the Federal government is working to help them respond and recover from the moment the emergency begins,” Thompson said
Under current law, people impacted by natural disasters are subject to up to 20% withholding and 10% in tax penalties if they draw from their retirement funds to cover emergency disaster costs.
Thompson said he is working to pass this bill as soon as possible so Americans can draw down their own retirement funds “during the worst moments of their lives.”
Added Kelly: “Americans should not be penalized for withdrawing their hard-earned retirement money to cover emergency costs stemming from a natural disaster. This bill will provide the resources and the peace of mind for people in a moment when they really need it.”
Companion bipartisan legislation was introduced in the Senate by Sen. Bill Cassidy (R-LA) and Bob Menendez (D-NJ) in June. Both bills would permanently remove penalties and fees on withdrawals for Federally-certified natural disasters.
The American Institute of CPAs (AICPA) is supporting the legislation, which the trade group said would help alleviate tax compliance burdens and streamline the process for victims of disasters who want to tap their own retirement funds.
“Allowing taxpayers to use their own funds, without penalty, during a critical time aligns with proposals the AICPA has advocated for and we’re grateful for the bipartisan support on this issue,” AICPA VP of Taxation Edward Karl said in a release.