IRA Withdrawal due to Federally Declared Disaster

landscape of building ruins and bare trees in the water under a cloudy sky on a gloomy day

There are many different natural disasters that occur throughout the United States each year. They can put a strong mental toll on families because of all the safety precautions that must be made and the personal items that can be destroyed.

On top of this, areas with more natural disasters generally have a higher insurance cost which will deter some families from getting it, increasing the amount of out-of-pocket repair expenses that will need to be paid.

Because of this, Congress added a code section in in the Secure 2.0 Act of 2022 that would allow individuals to withdraw money from their retirement account penalty-free if certain criteria are met that goes into effect starting January 1, 2023. The criteria for these withdrawals include:

  • The disaster occurred to the taxpayer’s principal place of abode
  • The withdrawal must be used to help pay for expenses that were incurred due to a federally declared disaster
  • The withdrawal must occur between 1 and 180 days after the disaster
  • The maximum amount for each disaster is the lesser of the cost of the damages caused by the disaster or $22,000, whichever is lower. The $22,000 limit is for each disaster


Because the amount of the withdrawal will be subject to ordinary income tax rates, there are different ways the income can be reported on the individual’s tax return (or not be reported as income at all):

  • The entire withdrawal can be reported on the tax return for the tax year in which the withdrawal was made
  • The entire withdrawal can be reported on the tax return for the tax year in which the withdrawal was made and the two subsequent tax years. Note that only one third of the total income would be reported each year, which may help with income tax brackets
  • The entire withdrawal can be redeposited back into the retirement account over the next three years. If this is done, no amount will be taxed upon distribution and the deposits will not be tax deductible or be subject to limitations

With everything that a family has to go through during a disaster, it is nice to know an amount can be withdrawn from an IRA account to help pay for expenses.