May 10, 2025 | 4-5 Minute Read
When it comes to natural disasters, the financial aftermath can be just as traumatic as the event itself. Retirement plan savers can experience loss or damage to property, including vehicles and housing, in addition to loss of income. Prior acts, such as the CARES Act and Taxpayer Certainty Act have provided retirement plan savers with forms of relief such as penalty-free withdrawals and loan options. SECURE 2.0 has provided a more permanent framework to allow retirement plan savers affected by federally declared disasters access to their retirement accounts in the form of Qualified Disaster Recovery Distributions (QDRDs) of up to $22,000 and Disaster Relief Loans of up to $100,000 to help them recover.
Please note that Penalty Free Withdrawals are just one of the new distribution options provided under SECURE 2.0. For more information on the other types please see our other articles on new distribution types:
- SECURE 2.0: Penalty-Free $1,000 Emergency Withdrawals
- SECURE 2.0: Penalty-Free Retirement Withdrawals for Victims of Domestic Abuse
- SECURE 2.0: Penalty-Free Terminal Illness Withdrawals from Retirement Plans
- SECURE 2.0: What Plan Sponsors Need to Know About Pension-Linked Emergency Savings Accounts (PLESAs)
When it Becomes Effective
While the SECURE 2.0 Act was enacted on December 29, 2022, Qualified Disaster Recovery Distributions (QDRDs) and Disaster Relief Loans apply to federally declared major disasters occurring on or after January 26, 2021.
How Each Works
Here is each works
- Qualified Disaster Recovery Distributions:
- Up to $22,000 can be withdrawn per federally declared major disaster.
- These distributions are not subject to the 10% early withdrawal penalty.
- To prevent additional hardship due to taxes, income tax is spread over the course of three years, unless otherwise elected.
- Participants may repay all or part of the distribution within three years to either the qualified plan it was taken from (if the plan allows for rollovers) or to an IRA. Any taxes that were paid on the distribution may be refunded by filing an amended tax return. The repayments are treated as a rollover into the plan or IRA and don’t count towards annual contribution limits.
- Disaster-Related Loan:
- Plan loan limits are increased to the lesser of $100,000 or 100% of the participant’s vested account balance.
- If the employee already has an existing plan loan, repayment deadlines may be extended up to one year.
These options are available in 401(k), 403(b), governmental 457 plans and IRAs and are limited to:
- Participants who reside in a federally designated disaster zone by FEMA.
- The participant must be directly or indirectly impacted by the disaster declaration, such as home damage or loss of a job.
- The distribution or loan must occur within 180 days of disaster declaration.
These provisions are meant to provide immediate relief to those affected by disasters, while providing options that help prevent long term retirement savings loss.
Other Considerations
Plan sponsors wanting to provide these options to their participants will need to amend their plan document. They will first want to ensure that their recordkeeper has the ability to track Qualified Disaster Recovery Distributions and/or Disaster Related Loans. For plans wanting to allow repayment of Qualified Disaster Relief Distributions back into the plan will want to ensure that their plan allows for rollovers into the plan. If not, they will need to amend their plan document. Participants will need to receive communications about these added provisions, through the distribution of the Summary of Material Modifications and Summary Plan Description. Your document provider can supply these documents for distribution.
Benefits² Administrators clients: If you have questions about adding Qualified Disaster Recovery Distributions and/or Disaster Related Loans to your plan, we encourage you to reach out to your dedicated Retirement Analyst. They can help you determine if your plan document will need to be amended to allow this provision and if it needs to be updated to allow for rollovers into the plan.
For non-clients or plan advisors seeking guidance: Feel free to contact Leslie Wood (lwood@benefits2llc.com) for additional information and support. Leslie can provide an overview of the SECURE 2.0 Qualified Disaster Recovery Distributions and/or Disaster Related Loans, if a plan document needs to be amended for this provision, or additional strategies for increased retirement savings.
Whether you are a current client or not, our goal at Benefits² Administrators is to ensure every plan sponsor has the knowledge and support to remain compliant and help participants succeed in difficult circumstances to continue to save for retirement.
JP Perryman, QKA
Jeremiah “JP” Perryman, QKA is the Director of Retirement Plan Compliance at Benefits² Administrators. He has more than 15 years of experience working with qualified retirement plans.