Disasters, such as Hurricane Ian, come with a major toll to an area's economy. Here's what the Government does to relieve the desperate and offer aid.
If you are a victim of Hurricane Ian, you may be eligible for some relief when it comes to your retirement accounts.
The IRS has postponed certain tax deadlines for individuals affected by Hurricane Ian until February 15, 2023. Some of these postponed deadlines apply to retirement accounts. For example, the relief includes more time to complete certain acts such as IRA rollovers or recharacterizations, correction of certain excesses and making contributions.
While the IRS can grant some tax relief to those affected by Hurricane Ian, its ability to do so is limited. There is some relief that the IRS does not have the power to give. For example, it cannot exempt early retirement account distributions from the 10% penalty. Such a change would require a change in the law and can only be made by Congress.
Congress has passed such legislation in the past for certain victims of Hurricanes Harvey, Irma, and Maria and the California wildfires. Similar legislation was also passed back in 2005 to help the victims of Hurricane Katrina and in 2020 for persons affected by COVID-19.
However, legislation giving retirement account relief to disaster victims is not always a sure thing. Congress gave no such relief to victims of Hurricane Sandy in 2012. Similar proposed legislation for victims of the superstorm that struck the northeast stalled in Congress and failed to become law when some members from the south and the Midwest objected, citing budget concerns.
There have been several proposals to make penalty-free disaster distributions a permanent part of the tax code. For example, the bipartisan Disaster Retirement Savings Act proposed in 2021 included provisions granting relief from the 10% penalty. These provisions would be triggered automatically if the President issues a federal disaster declaration. These proposals may gain some traction in Congress and could be part of a larger retirement package that may come later this year, which is often referred to as SECURE 2.0.
By Sarah Brenner, JD
Director of Retirement Education
Ed Slott and Company, LLC