Before the enactment of the SECURE 2.0 Act of 2022, there was no disaster relief allowing for distributions from retirement plans such as solo 401k plans, and IRAs and for solo 401k participant loans, for participants affected by federally declared major disasters. Resulting from The SECURE 2.0 Act, victims of hurricanes including Helena and Milton have the option to make distributions from their IRA and self-directed solo 401k plan up to the allowed limits without first having to wait for legislative action. For example, on October 1, the IRS announced disaster tax relief for all individuals and businesses affected by Hurricane Helene, including the entire states of Alabama, Georgia, North Carolina and South Carolina and parts of Florida, Tennessee and Virginia.
Qualified Disaster
Relief provided under SECURE 2.0 applies when a major disaster has been declared. The Federal Emergency Management Agency (FEMA) issued Major Disaster Declarations for both hurricanes Helena and Milton.
While the distributions will still be subject to federal taxes, and depending on your state of residence, state taxes, the 10% early distribution which applies to distributions made from solo 401k plan prior to to the participant reaching age 59 1/2, will not apply to distributions made on account of disaster relief.
Self-Directed Solo 401k Plan Penalty-Free Disaster Distributions
- $22,000 is the maximum aggregate amount for each FEMA declared disaster; an individual with more than one IRA or solo 401k plan is still bound by that per-disaster limit.
- If you are under age 59 ½, you won’t have to pay a 10% early distribution penalty on the solo 401k distribution.
- Distributions must generally be made within 180 days after the disaster occurs (or, if later, within 180 days after the disaster declaration).
- The federal taxes due on the solo 401k qualified distribution can be spread over three years, starting with the distribution year, the participant can also elect to include the entire distribution amount in income in the year of the distribution.
- Distributions from the solo 401kk may be repaid to the solo 401k or to an IRA at any time during the three-year period beginning on the day after the distribution.
- If the solo 401k participant repays the distribution, it will be treated as though it were repaid in a direct trustee-to-trustee transfer so that qualified individual does not owe federal income tax on the distribution.
Solo 401 k participants can check fema.gov/locations to identify if they are located in a designated disaster area.
Solo 401k Participant Loan Relief
SECURE 2.0 permits an additional year for repayment of solo 401k participant loans and relaxes certain dollar limits on loans.
If your solo 401k plan allows for participant loans, the participant can process a loan of up to the lesser of $100,000 or their vested account balance and delay loan repayments for up to one year. The increased loan limits are permitted beginning on the latest of 1) the first day of the incident period or 2) the declaration date and ending on the day that is 180 days after the beginning date. Solo 401k participant loan repayment delays are permitted for outstanding loans on or after the latest of the first day of the incident period or the declaration date, if the payment due date occurs between the first day of the incident period and 180 days after the last day of incident period.
Disaster Relief Resources
- IRS disaster relief frequently asked questions
- Form 8915-F, Qualified Disaster Retirement Plan Distributions and Repayments
- The IRS Tax Relief in Disaster Situations
- Deadlines Postponed to May 1, 2025
