Understanding Your Rights and Qualified Disaster Distributions

Natural disasters have devastated widespread areas of the country this summer--with wildfires, floods and hurricane season just reaching its peak, many taxpayers have questions about their options for tapping retirement dollars when disaster strikes. Qualified disaster distribution rules allow taxpayers to tap retirement accounts without penalty if they live in a federally declared disaster area and have suffered economic loss due to the disaster. taxpayers are required to take the distribution within 180 days of the disaster and the maximum distribution amount is $22,000 per disaster ($44,000 per married couple). Taxpayers can also repay a qualified disaster distribution within three years to avoid paying taxes on the distribution (repayments can be made over time or in a lump sum and can be made to any retirement account if the original distribution could have been rolled over to that account). The one-per-year rollover rule does not apply to recontributed amounts. Taxpayers who pay taxes on the distribution and later recontribute can file amended returns to seek a refund of the taxes paid. For more information on the rules governing disaster distributions, visit Tax Facts Online. Read More: Link to Q3800.01.