Surviving disaster: Key considerations for moving ahead

While Hurricane Milton and Hurricane Helene caused a horrendous loss of lives and billions of dollars in damage to properties and businesses in multiple states in recent events lasting a little more than 24 hours, we know recovery on the other side of such epic storms will take a lot longer.

What survivors need to know is: There is help.

Recovering from a disaster is usually a gradual process, according to the Federal Emergency Management Agency (FEMA). But knowing how to access the help you need can make the process faster and less stressful, FEMA notes.

There are many sources of immediate help. Federal, state and local safety and emergency personnel, including military, national guard, police, fire and EMTs are focused on safety. Often the first to arrive on scene, neighbors are there to help. Volunteers from around the country—private individuals and businesses—with helicopters, boats, trucks, emergency equipment and construction workers, laborers, search and rescue teams come to volunteer and help people evacuate and move mountains of debris.

Knowing where to seek help, whether it is for physical or health-related needs or emotional wellbeing, is paramount for individuals.

A number of organizations provide direct assistance to individuals and families including the American Red Cross, the Salvation Army and other volunteer organizations. These organizations provide food, shelter, supplies and assist in cleanup efforts.

In its guide, “Recovering from Disaster,” FEMA states: “The emotional toll that disaster brings can sometimes be even more devastating than the financial strains of damage and loss of home, business or personal property."

Individuals may want to contact local faith-based organizations, voluntary agencies or professional counselors for counseling services. Additionally, FEMA and state and local governments in the affected areas may provide crisis counseling assistance.

Emergency funds

Here are some considerations for individuals and families as they think about next steps, where to go and how to access funds after suffering a loss of property or jobs.

Congress provides for ongoing disaster relief for distributions in the case of federally-declared major disasters.

Access to funds from retirement accounts

The IRS has published “Disaster relief frequently asked questions,” which answers questions about the SECURE 2.0 Act of 2022 and outlines the rules for distributions from retirement accounts for those impacted major disasters.

Here are some highlights of what you need to know:

Qualified federal disaster withdrawal  

• The SECURE 2.0 Act allows for up to $22,000 to be distributed from employer retirement savings plans or IRAs for affected individuals
• The withdrawals are not subject to 10% early withdrawal penalty (but are subject to taxation)
• The taxes owed on the distribution can be spread equally over three years
• Distributions can be repaid into the retirement account to recoup tax payments

 

Retirement account emergency withdrawals

• Limited to one distribution annually from a defined contribution retirement plan or IRA, which cannot exceed $1,000.
• There is an option to repay the distribution using a tax-free rollover within three calendar years.
• Once a distribution is made, an individual cannot request another emergency distribution during the following three calendar years unless the previous distribution has been repaid or, the aggregate amount of contributions into the plan (employee and employer) after the previous emergency distribution is at least equal to the previous emergency distribution.
• Retirement plan providers and IRA custodians are not required to offer personal emergency distributions.
• IRS guidance includes examples of emergencies, but it is not an exclusive list. The account owner is allowed to self-certify to their plan provider or IRA custodian that they are dealing with an emergency situation. In a recent Notice, the IRS identifies factors to consider, including (but not limited to) medical care, accident or loss of property, foreclosure from a residence, funeral costs, auto repairs and “any other necessary emergency personal expenses.”

 

Loans from employer retirement plans

Not specific to disaster relief, most employer plans allow participants to access up to 50% of their vested balance or $50,000, whichever is less.

Tax-related considerations

In addition to filing a claim with an insurance company, property owners need to know that casualty losses—property damage from disasters such as hurricanes and floods — can be deducted on tax filings.

The IRS defines a personal casualty as a loss from casualty, disaster and theft that is not connected to a trade or business, or a for-profit transaction. Generally, if the loss is caused by a federally-declared disaster, you may deduct personal casualty losses related to your home, household items and vehicles on your federal income tax return. The IRS has an information section on “Casualty, disaster and theft losses.”

Here are some key considerations about casualty losses for taxpayers.

• Generally, these losses are considered itemized deductions on the tax return.
• Net of any insurance payouts, taxpayers can deduct casualty losses of more than 10% of their adjusted gross income. Filers also need to subtract $100 from each casualty loss.
• The deduction can be used in the current tax year, or if the area is a federally-declared disaster area, taxpayers can deduct a casualty loss on the preceding year’s tax return.

If you have a qualified disaster loss, you may also elect to deduct the loss without itemizing your deductions. Your net casualty loss doesn't need to exceed 10% of your adjusted gross income to qualify for the deduction.  But you would need to reduce each casualty loss by $500 after any salvage value and any other reimbursement. For more information, see the Instructions for Schedule A (Form 1040) or Instructions for Form 1040-NR and Publication 547.

Insurance actions

The National Association of Insurance Commissioners has published a Post-Disaster Claims Guide. The publication offers a step-by-step guide for next steps after surviving a disaster.

First, and foremost, is to make sure you and your family are safe.

• Secure your belongings
• Document damages, take pictures and save receipts 
• Find out the required timing for important deadlines for filing a claim
• File a claim with your insurance agent and explore homeowners insurance coverage and hazard policies
• Be aware of the process and your rights to appeal an insurance claim estimate that you do not think is accurate

Other financial considerations

• If appropriate, tap into an emergency fund and set priorities.
• Contact creditors immediately if the disaster has impacted your ability to pay bills or loans, and ask them for relief to stay in good standing. Forms of relief may include loan forbearance, lower monthly payments, deferred payments, waived interest or late fees, etc. 

• Use support networks and contact family and friends.
• Contact your student loan servicer and request "disaster forbearance.” Learn more at student aid.gov.
• Contact your loan servicer and see if there are options to request relief on mortgage payments.
• Check the FEMA website to apply for assistance. FEMA grants are generally not considered taxable income.
• Beware of disaster scams and red flags. FEMA has a fact sheet on what to look for.
• Gifts to qualified charities may be deductible, but direct donations to individuals in need are not deductible.  

A comprehensive guide

For a comprehensive guide on preparing for a disaster, including important steps to take after an event, see this resource from the American Red Cross, “Disasters and Financial Planning.”