Financial relief provided to individuals affected by California wildfires

Fierce wildfires are raging through Los Angeles County with fast-moving, minimally contained flames engulfing homes, businesses and vast amounts of forested acreage this past week. This disaster is expected to be the most destructive in recorded Los Angeles history.¹

The human cost is immeasurable and immediate. For those individuals affected by this wildfire or any other government-declared natural disaster, we know many people may have questions about how to access financial support. We’ve compiled options that may be available in your workplace retirement plan, however, you will want to check with your employer for details or visit the IRS resource: Disaster relief FAQs under Secure Act 2.0 for more information.

The SECURE 2.0 Act (SECURE 2.0) enacted on December 29, 2022, changed the IRS tax code to offer special rules for retirement plan distributions and loans for people affected by major disasters declared by the federal government. Within SECURE 2.0, there are special disaster-related provisions to provide financial relief to those qualified and in need. 

Special disaster relief rules for workplace retirement plans and IRAs in SECURE 2.0:

• Expanded distribution and tax relief: Up to $22,000 of qualified disaster recovery distributions from all eligible retirement plans (employer-sponsored defined contribution 401(a), 401(k), 403(b) and governmental 457(b) plans, and IRAs), for qualified individuals.  A qualified disaster recovery distribution is exempted from the IRS 10% premature distribution penalty tax. 
• Relief to repay distributions taken for primary home purchase/construction distributions: Repayment options for first-time homebuyer distribution from an IRA or a hardship withdrawal from a 401(k) or 403(b) plan if the money was to be used to purchase or construct a primary home in a disaster area if the disaster prevented the use of funds.
• Plan loan relief: A defined contribution 401(a), 401(k), and 403(b) and governmental 457(b) plan may permit an increased maximum available loan amount to the lesser of 100% of the vested benefit or $100,000 (aggregated across all plans of the employer) for qualified individuals. In addition, if permitted by the plan, for loans that were outstanding on or after the later of (1) the first day of the incident period or (2) the date of the federal disaster declaration, plan sponsors may suspend loan payments due within 180 days after the last day of the incident period and extend the due dates for these payments up to one year. 

Who and what are considered qualified?

• Qualified individuals: Any individual whose principal residence was in the qualified disaster area at any time during the qualified disaster incident period who sustained an economic loss due to that qualified disaster. 
• The incident period: The period for a qualified disaster is the time specified by FEMA when the disaster happened. FEMA is the Federal Emergency Management Agency (FEMA) and will define the period in which the disaster occurred. The incident period could be a single day (in the case of a tornado) or multiple days (in the case of fire, snow events or hurricanes). To learn more about FEMA designations for incident periods, read FEMA website on declared disasters.
   

Alternative resources

While financial relief is almost always needed during disaster recovery, it may be worth reaching out to the Federal Emergency Management Area (FEMA) disaster assistance to learn about options you have under federally funded relief before you consider a withdrawal or loan from your workplace savings.

For those who meet the requirements, FEMA may provide assistance to underinsured survivors to help pay for disaster-related costs that insurance doesn’t cover.

Voya Financial and its employees are supporting Los Angeles wildfire relief efforts through our disaster relief partner Americares Disaster Relief and Global Health Organization, who is currently on the ground working with other relief agencies to provide ongoing supplies and resources to those affected by the devastation and could be another resource for you or someone you know in need. You can also contact a financial professional who can provide clarity to these options and guide you toward the best solution for your current circumstances.