Disaster Relief Distributions - Withholding

Are the Federal Disaster distributions under SECURE 2.0 subject to the 10% withholding that normally applies to retirement plan distributions that are not eligible for rollover?

Thank you.

Qualified Disaster Relief Distributions QDRDs are not subject to the 10% early distribution penalty.

Keep in mind that there is a limit on the amount ($22,000), that a participant can treat it as gross income spread over 3 years, and than the participant can be repay it to the plan or an IRA within 3 years.

QDRDs are protected benefits, so be careful in drafting the administrative policy or plan amendment.  Similarly to how hardship distribution provisions are drafted, some plan sponsors are considering limiting sources, amount, and even which disasters will be available.

Hi Paul, I should have been clearer.  What I was referring to is withholding at the time of the distribution.  Distributions that are not eligible for rollover (and are subject to mandatory 20% withholding) typically have a 10% withholding default rate that can be waived with a 4W-R form.  I was not sure if the 10% default withholding also applied to these disaster relief distributions.

Thank you.

The 10% default withholding rule applies. That's because the law provides that these are not eligible rollover distributions (if they were, then the 20% withholding rules would apply).  

(i) EXEMPTION OF DISTRIBUTIONS 20 FROM TRUSTEE TO TRUSTEE TRANSFER AND WITHHOLDING RULES.—For purposes of sections 401(a)(31), 402(f), and 3405, qualified disaster recovery distributions shall not be treated as eligible rollover distributions.