Natural Disaster and Terminal Illness Distributions

Penalty-free for participants

How is SECURE 2.0 relevant to you?

Select one of the options below to learn more.

Defined contribution plan participants can access their retirement funds—penalty free—for natural disasters and terminal illness.

Historically, Congress has granted temporary relief to allow participants to access retirement plan funds either through a distribution (up to $22,000) or a loan (up to $100,000) after a qualified federally declared disaster or a terminal illness. SECURE 2.0 establishes permanent rules for governing plan distributions and loans to participants affected by natural disasters and terminal illness.

Qualified Disaster Recovery Distributions (QDRDs)

Participants of 401(k), 403(b), governmental 457(b) and individual retirement plans can now receive penalty-free Qualified Disaster Recovery Distributions (QDRDs) when affected by natural disasters occurring on or after January 26, 2021. However, there are some important details about eligibility and dollar limits.

Eligibility: participant must have sustained an economic loss, and their primary residence must have been in the disaster area.
Max distribution: $22,000 per disaster aggregated across all employer-sponsored and individual retirement plans.
Max loan: the lesser of $100,000 or 100% of the vested account balance. Plans can also suspend loan repayments for up to one year (requires loan extension).
Timeframe: QDRDs must be made within 179 days after the later of:
- the first day of the incident period or
- the date of the disaster declaration (for disasters occurring between January 26, 2021, and December 29, 2022, the deadline is June 27, 2023)

Are you concerned about out-of-pocket expenses after a natural disaster?

You are not alone.

A recent survey found that 45% of Americans do not know what their homeowner’s insurance will cover after a natural disaster.

While not ideal, qualified plan participants may be able to access retirement plan funds (penalty-free) to help with the cost of repairs, relocation and daily living expenses while they recover.

^{Source: ValuePenguin survey of 1,577 consumers conducted in July 2022.}

Terminal illness distributions

Effective for distributions made on or after December 29, 2022, plan sponsors may offer terminally ill participants penalty-free distributions from their retirement plans. You should read more information below about participant eligibility and dollar limits.

Eligibility: participants must present plan sponsors with a physician certification (sufficient evidence) that the employee has an illness or physical condition reasonably expected to result in death within 84 months.
Max distribution: up to 100% of vested account balance
Timeframe: none

Distribution and loan repayment options

Participants who take penalty-free distributions due to a natural disaster or terminal illness may have the option to repay all or a portion of the distribution over three years. Repayment of natural disaster distributions will be treated as if the distribution was an eligible rollover distribution and as having satisfied the requirements for a 60-day rollover—if the plan accepts rollovers. In addition, participants who take QDRDs can repay the distribution regardless of their eligibility to contribute to the plan. However, repayments of distributions for terminal illness can only be made if the participant is otherwise eligible to contribute to the plan.

Tax treatment

In general, QDRDs are included in a participant’s income, and taxes can be spread out over a three-year period. QDRDs are not eligible rollover distributions, therefor plan sponsors do not need to give a 402(f) notice to participants.

Distributions for terminal illness are included in income in the year received. In addition, there is currently no guidance on whether plan sponsors must provide a 402(f) notice for distributions to a terminally ill employee.

Plan amendments

Qualified plans that want to offer distributions and loans to participants who are affected by natural disasters or terminal illness will need to amend their plan documents by the end of the plan year in which this option is offered to participants.

If you have additional questions about this provision, please speak with your financial professional or Corebridge Financial relationship manager.

Corebridge Financial: Moving financial futures forward.

As these SECURE 2.0 provisions become effective, plan sponsors will have more flexibility in helping employees achieve personal and financial wellness. For more information about these and other SECURE 2.0 provisions, reach out to your Corebridge representative and visit our online hub. This new online resource breaks down and simplifies relevant provisions of SECURE 2.0. We will continue to update the hub with more relevant and timely content—so please visit often.

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