Senate Tax Extenders Bill Has Disaster Provisions Impacting Retirement Plans

Senate Finance Committee Chairman Charles Grassley (R-IA) has introduced the Tax Extender and Disaster Relief Act of 2019 (S. 617). The primary aim of the legislation is to extend a number of expired or expiring tax provisions, which generally are viewed as tax incentives or as offering special tax options.

This legislative vehicle is also being used to provide tax-related relief to victims of several 2018 natural disaster events. These include presidentially-declared disasters that occurred between January 1, 2018, and March 1, 2019 (this bill’s relief does not include victims of California wildfires, for whom similar relief was provided by Public Law 115-123).

The bill’s following tax relief provisions specific to retirement savings arrangements apply to distributions taken from IRAs and tax-qualified employer-sponsored retirement plans.

  • “Qualified disaster distributions” would include amounts not to exceed $100,000, received by a person whose principal residence was located in a covered disaster area and who suffered economic loss as a result.
  • Qualified distributions would include those taken on or after the first day of the covered disaster period, and before a date 180 days after enactment of this legislation.
  • The 10 percent excise tax for early distributions would not apply to qualified disaster distributions.
  • Inclusion in income of qualified disaster distributions would be done ratably over a three-year period, unless a taxpayer chose otherwise.
  • Such distributions could be repaid over a three-year period.
  • Qualified disaster distributions from employer plans would not be subject to mandatory 20 percent withholding.
  • Certain retirement plan distributions taken for purchase of a principal residence, but not used due to disaster events, could be recontributed.
  • Loan amounts up to $100,000 could be taken from an eligible employer plan.
  • Plan loan repayments following disaster events could be delayed up to one year, or 180 days after this legislation’s enactment, whichever is later; this delay would not alter loan amortization (in effect, lengthening a five-year amortization period).
  • A plan amendment necessary to comply with these provisions could be made up to, and including, the last day of the 2020 plan year, or a later date if prescribed by the Secretary of the Treasury (two years later for governmental plans).

The prospects for this legislation to be enacted are unclear at this time, due in part to differing leadership positions on whether the tax cost of these provisions must be offset with new revenues, offset with spending cuts elsewhere, or enacted without offsets. Progress of this legislation will be monitored closely, and developments reported at this Ascensus.com News as warranted.