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What: SECURE 2.0 provides that participants are allowed to use up to $22,000 of funds from employer retirement plans or IRAs for qualified disaster-related expenses with no early distribution penalty

Action Required:

Key Dates: Effective for disasters occurring on or after 1/26/2021

Impacted Audiences: Participants with a 401(a) defined contribution plan, 457(b) plan or IRA who have their principal place of abode within a federally declared disaster area (may impact other plan types not offered by MERS)

For More Information: Click "Read More" below

Key Information:

Exception to 10% early distribution penalty and expanded access to plan loans for plan participants in disaster areas

Allows up to $22,000 to be distributed from employer retirement plans or IRAs for affected individuals. Such distributions, called “Qualified Disaster Recovery Distributions,” are not subject to the 10% early distribution penalty, and the individual may include the distribution in their gross income over three years. The
individual may repay this amount in the same manner applicable to qualified birth or adoption distributions.

To qualify for such distributions, an individual must have their principal place of abode within a federally declared disaster area, and they must generally take their distribution within 180 days of the disaster. These distributions are not eligible rollover distributions and are exempt from the 20% mandatory

Additionally, amounts distributed prior to the disaster to purchase a home can be re-contributed, and an employer is permitted to provide for a larger amount to be borrowed from a plan by affected individuals and for additional time for repayment of plan loans owed by affected individuals. Loans of up to 100% of a
participant’s vested balance (which are normally limited to the greater of $10,000 or 50% of the participant’s vested balance) are permitted, up to a maximum of $100,000 (normally limited to $50,000). In addition, repayment dates for certain payments may be delayed for one year. These loans must be taken within 180
days following the disaster to qualify for these terms.

This change is effective for disasters occurring on or after 1/26/2021.

More information: MERS SECURE 2.0 Resource Page

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