Special disaster-related rules for use of retirement funds under Section 202 of the Act

  • This provision allows taxpayers who take qualified disaster distributions to include the distribution amount in their income in equal amounts over a three-year period for federal purposes. Additionally, a taxpayer may repay qualified disaster distribution amounts over a three-year period beginning on the day after the distribution was made and repayments will be treated as a trustee-to-trustee transfer. A “qualified disaster distribution” generally includes a distribution of up to $100,000 from certain retirement plans made after an incident period begins but before July 17, 2020, to an individual who lives in a qualified disaster area during the incident period and who suffered an economic loss from the disaster.

    To the extent any qualified disaster distribution is timely repaid for federal tax purposes but included in income for Iowa tax purposes, the taxpayer may have a different tax basis in their retirement account for federal and Iowa purposes.

    • Iowa Treatment for Tax Year 2018: Taxpayers who already filed a 2018 Iowa income tax return should not file an amended Iowa return because of this federal change.  If a taxpayer files an original 2018 Iowa income tax return that includes a deferral of a qualified disaster distribution described above the taxpayer must include the entire taxable amount of their distribution as income in the year that the funds were distributed. If the taxpayer’s federal adjusted gross income does not include the entire distribution, the taxpayer should add back the remaining amount on the 2018 Nonconformity Adjustments Worksheet, line 30. When this occurs, the taxpayer will be entitled to a deduction in tax years 2019 and later for these distribution amounts if they are included in federal adjusted gross income. This future deduction should be claimed on the IA 101 Nonconformity Adjustments form, line 12.
    • Iowa Treatment for Tax Year 2019: Taxpayers who take a qualified disaster distribution in 2019 and elect not to include the full amount in income for federal tax purposes must make an adjustment to include the entire distribution in income for Iowa tax purposes. This addition should be made on the IA 101 Nonconformity Adjustments form, line 12. When this occurs, the taxpayer will be entitled to a deduction in tax years 2020 and later for these distribution amounts if they are included in federal adjusted gross income. This future deduction should be claimed on the IA 101 Nonconformity Adjustments form, line 12.

      Note: If in 2019 or a later year, the taxpayer’s federal adjusted gross income includes income from a qualified disaster distribution related to federally-declared disaster areas in 2016 (P.L. 115-97), the Hurricanes Harvey, Irma, and Maria disaster areas in 2017 (P.L. 115-63), or the California wildfire disaster area in 2017 and 2018 (P.L. 115-123), the taxpayer will be entitled to a subtraction for that income, but only if such distribution was already included in Iowa income in a prior tax year. This subtraction, if available, should be made on the IA 101 Nonconformity Adjustments form, line 12.

  • This provision allows individuals who received qualified distributions—certain distributions from retirement plans that were received between 180 days before the applicable incident period and 30 days after the incident period and that were intended to be used to purchase or build a principal residence in a qualified disaster area, but which was not actually used for that purpose—to recontribute an amount equal to the distribution in an eligible retirement plan. Such recontributions are treated as a trustee-to-trustee transfer for federal purposes. Iowa was not conformed to this provision for tax years 2018 and 2019.

    To the extent any disaster distribution described above is timely repaid for federal tax purposes but included in income for Iowa tax purposes, the taxpayer may have a different tax basis in their retirement account for federal and Iowa purposes.

    • Iowa Treatment for Tax Year 2018: Taxpayers who already filed a 2018 Iowa income tax return should not file an amended Iowa return because of this federal change. If a taxpayer files an original 2018 Iowa income tax return that excludes these withdrawals from federal income as a qualified recontribution, as described above, the taxpayer must include the entire taxable amount of their distribution as income for Iowa purposes on the 2018 Nonconformity Adjustments Worksheet, line 30, in the year that the funds were distributed.

    • Iowa Treatment for Tax Year 2019: If a taxpayer’s 2019 Iowa income tax return excludes these withdrawals from federal income as a qualified recontribution, as described above, the taxpayer must include the entire taxable amount of their distribution as income for Iowa purposes on the IA 101 Nonconformity Adjustments Worksheet, line 12, in the year that the funds were distributed.
  • This provision allows qualified individuals (individuals whose principal place of abode was located in a qualified disaster area at any time during the incident period of the qualified disaster and who suffered an economic loss as a result of the qualified disaster) to take a larger maximum loan amount ($100,000 vs. $50,000) from a qualified employer plan in the period of 180 days beginning on December 20, 2019. It also provides qualified individuals with an extended period to repay certain outstanding loans before they are considered a deemed distribution and included in income. Iowa is not conformed with these provisions for tax years 2018 or 2019.

    To the extent any qualified plan loan is not classified as a deemed distribution and is therefore properly excluded from federal income under the provisions as described above, but is included in income for Iowa tax purposes, the taxpayer may have a different tax basis in their retirement account for federal and Iowa purposes.

    • Iowa Treatment for Tax Year 2018: Taxpayers who already filed a 2018 Iowa income tax return should not file an Iowa amended return because of these provisions. If a taxpayer files an original 2018 Iowa income tax return that excludes a deemed distribution from federal income because the taxpayer qualified for an extended loan repayment period under this provision, the taxpayer should add back the deemed distribution on the 2018 Nonconformity Adjustments Worksheet, line 30.

      If in a subsequent tax year the taxpayer is required to include these amounts in federal income as a deemed distribution, the taxpayer may subtract this deemed distribution on the IA 101 Nonconformity Adjustments form, line 12, to the extent previously included in 2018 Iowa income as described above.

    • Iowa Treatment for Tax Year 2019: If the taxpayer’s 2019 Iowa income tax return excludes a deemed distribution from federal income because the taxpayer qualified for an extended loan repayment period under this provision, the taxpayer should add back the deemed distribution on the IA 101 Nonconformity Adjustments form, line 12.

      If the taxpayer was allowed to take a larger loan than the maximum allowed under IRC section 72(p)(2) because of this provision for federal purposes, the taxpayer must include any amount in excess of the regular maximum loan limitation as an addition to income on the IA 101 Nonconformity Adjustments form, line 12.

      If in a subsequent tax year the taxpayer is required to include these amounts in federal income as a deemed distribution, the taxpayer may subtract this deemed distribution on the IA 101 Nonconformity Adjustments form, line 12, to the extent previously included in Iowa income as described above.

      Note: If in 2019 or a later year, the taxpayer’s federal adjusted gross income includes a deemed distribution resulting from failure to repay a loan that was previously granted a federal repayment extension under disaster-related provisions for Hurricanes Harvey, Irma, or Maria (P.L. 115-63), or the California wildfires (P.L. 115-123), the taxpayer will be entitled to a subtraction for that income to the extent it was included in Iowa income in a prior tax year. This subtraction, if available, should be made on the IA 101 Nonconformity Adjustments form, line 12.