Broker Check

Disaster Relief Provisions

10% early withdrawal penalty does not apply to qualified disaster distributions

A 10% early distribution penalty generally applies to, among other things, a distribution from employer retirement plan to an employee who is under the age of 59½. (Code Sec. 72(t))

New law. The Taxpayer Certainty and Disaster Tax Relief Act (TCDTR) provides that Code Sec. 72(t) does not apply to any qualified disaster distribution. (TCDTR Sec. 302(a)(1))

A "qualified disaster distribution" is any distribution from an eligible retirement plan (defined under TCDTR Sec. 302(a)(4)(B)) made (i) on or after the first day of the incident period (defined under TCDTR Sec. 301(4)) of a qualified disaster (defined under TCDTR Sec. 301(3)) and before the date which is 180 days after the date of the enactment of the TCDTR, 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 (defined under TCDTR Sec. 301(1)) with respect to such qualified disaster and who has sustained an economic loss by reason of such qualified disaster. (TCDTR Sec. 302(a)(4)(A))

The aggregate amount of distributions received by an individual which may be treated as qualified disaster distributions for any tax year may not exceed the excess (if any) of $100,000, over the aggregate amounts treated as qualified disaster distributions received by such individual for all prior tax years. (TCDTR Sec. 302(a)(2))

In the case of any qualified disaster distribution, any amount required to be included in gross income for such tax year shall be so included ratably over the 3-tax year period beginning with such tax year. A taxpayer can elect to not have this 3-tax year rule apply. (TCDTR Sec. 302(a)(5))