Qualified taxpayers who have sustained an economic loss because of the qualified disaster are allowed to withdraw from their eligible retirement plans, including IRAs, up to $22,000 less the aggregate amounts treated as qualified disaster distributions the taxpayer received for all prior taxable years. The taxpayer’s principal place of abode at any time during the incident period must be located in the qualified disaster area and the individual must have sustained an economic loss by reason of the qualified disaster. (Consolidated Appropriations Act, 2023, Sec. 331, amending IRC 72(t)(2))

Qualified disaster distributions are not subject to the 10% early withdrawal penalty that applies to distributions taken by individuals under age 59½.

The normal 20% withholding rule for distributions from qualified plans will not apply to a qualified disaster distribution. 

Only distributions made on or after the first day of the incident period of a qualified disaster and before 180 days after the date of the incident period begins can qualify.

The Act permits the taxpayer to spread the income from the qualified distribution over a three-year period beginning with the year of distribution or elect out. CAUTION: When making that decision the casualty loss and any resulting NOL, if applicable, need to be considered when deciding whether or not to utilize the three-year option.

Any amount of the distribution can be re-contributed in one or more recontributions over the 3-year period beginning on the day after the date of the distribution. If the funds are re-contributed, they are treated as having been transferred via direct trustee-to-trustee transfer within the 60-day limit.

Eligible Retirement Plan is defined by reference to IRC Sec 402(c)(8)(B) and therefore is any of the following: