Wildfire Relief: Retirement Plan-Disaster Distributions Permitted Without 10% Penalty

Among the many SECURE 2.0 Act changes, Section 331 allows retirement plans (401(k), 403(b), and 457(b) plans) to make in-service qualified disaster recovery distributions to participants stricken by a qualified disaster. Distributions up to $22,000 to a qualified individual (whose principal place of abode is within a federally declared disaster area) are permitted on or after the first day of the incident period of a qualified disaster and prior to 180 days after the first day of the incident period or disaster declaration. These distributions can be taxed over a three-year period and avoid the 10% early distribution penalty tax. Employers also can consider making tax-free payments directly to affected employees using the benefits provided under I.R.C. § 139(a).

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