The "READY Accounts Act" establishes tax-advantaged savings accounts for homeowners to prepare for and recover from disasters, allowing annual deductions for contributions used for qualified mitigation and recovery expenses.
Laurel Lee
Representative
FL-15
The READY Accounts Act establishes Residential Emergency Asset-accumulation Deferred Taxation Yield (READY) accounts, which allow individuals to deduct up to $4,500 annually for contributions used for qualified home disaster mitigation and recovery expenses. These accounts offer tax benefits, including tax-exempt status and exclusion of qualified distributions from gross income, while non-qualified distributions are subject to taxation and potential penalties. The bill also outlines rules for rollovers, divorce-related transfers, treatment upon the beneficiary's death, and reporting requirements. This act amends the Internal Revenue Code to coordinate READY accounts with existing tax provisions and takes effect for taxable years beginning after December 31, 2024.
New READY Accounts Offer Tax Breaks for Disaster Prep and Recovery, Starting 2025
The READY Accounts Act creates new tax-advantaged savings accounts, called READY accounts, designed to help homeowners prepare for and recover from disasters. Starting in 2025, you can deduct up to $4,500 per year in contributions to these accounts, potentially lowering your tax bill. The money grows tax-free and can be withdrawn without owing taxes if it's used for 'qualified' disaster mitigation or recovery expenses.
Disaster-Proofing Your Wallet?
The idea is to incentivize folks to be proactive about disaster preparedness. Think reinforcing your roof, installing impact-resistant windows, or even elevating your home to meet FEMA standards – all potentially covered, tax-free, if a 'qualified industry professional' (a term the bill defines) signs off. After a disaster, you can use the funds to repair damage not covered by insurance. For example, if a hurricane tears off part of your roof and insurance only covers 80% of the repair, you could tap your READY account for the remaining 20%, assuming it qualifies. Section 2 of the bill lays out all the specifics, including a handy inflation adjustment for the $4,500 contribution limit starting in 2026.
The Fine Print (and the 20% Sting)
Here's the catch: if you use the money for anything other than qualified expenses, you'll pay income tax on it plus a hefty 20% penalty. So, this isn't a general-purpose savings account; it's specifically for disaster-related costs. The bill also requires the trustee managing your READY account to report all contributions and distributions to the IRS (Section 2), so everything's above board. There are also rules for handling excess contributions, rollovers between accounts, and what happens to the account if the owner passes away or gets divorced.
Real-World Ready?
While the READY Account offers potential tax benefits, the 20% penalty for non-qualified withdrawals is significant. Whether $4,500 is enough to make a real difference in either mitigation or major recovery is another question. It will be interesting to see how many people will use this account, and if it will add more complexity to the tax code. The bill also coordinates with existing tax rules related to casualty losses and itemized deductions (also in Section 2), so it might get a bit complicated if you're already dealing with those.