READY Accounts Act
- Sponsor
- Rep. Lee, Laurel M. [R-FL-15]
- Committees
- Ways and Means Committee (primary)
- Last action
- Jan 15, 2025
Bottom line
The READY Accounts Act creates a new tax-advantaged savings vehicle to incentivize homeowners to invest in disaster preparedness and recovery for their primary residences.
What it actually does
This bill amends the Internal Revenue Code to establish Residential Emergency Asset-accumulation Deferred Taxation Yield (READY) accounts. These accounts allow individuals to make tax-deductible contributions, up to an inflation-adjusted annual limit, for the exclusive purpose of paying for qualified home disaster mitigation measures and recovery costs. Distributions from these accounts are tax-free if used for these qualified expenses, but subject to income tax and a 20% penalty if used for non-qualified purposes.
Proponents argue
Supporters argue that this bill empowers homeowners to proactively invest in measures that protect their homes from natural disasters, thereby reducing future damage, accelerating recovery, and potentially lessening the burden on federal disaster relief programs. They contend it provides a necessary financial incentive for resilience.
Opponents contend
Critics might contend that this bill primarily benefits higher-income individuals who can afford to save and itemize deductions, potentially exacerbating wealth inequality. They may also argue that it adds further complexity to the tax code and represents a new tax expenditure that could increase the federal deficit.
The bill is moderately complex due to its integration into the existing tax code, but its length makes it manageable for a dedicated reader to understand its core provisions within a reasonable timeframe.
Section 2(a), new section 224(a) and (c) of the Internal Revenue Code of 1986
Creation of Tax-Deductible Residential Emergency Asset-accumulation Deferred Taxation Yield (READY) Accounts
This provision establishes "Residential Emergency Asset-accumulation Deferred Taxation Yield (READY) accounts" as a new type of tax-advantaged savings account. Individuals can deduct cash contributions made to these accounts from their taxable income each year, up to a specified limit. The accounts are designed exclusively for paying qualified home disaster mitigation and recovery expenses.
Supporters argue
Supporters argue this provision directly incentivizes homeowners to save for and invest in measures that protect their homes from disasters, reducing future damage and recovery costs.
Critics contend
Critics might argue that the tax deduction primarily benefits higher-income individuals who itemize deductions and have disposable income to save, potentially creating an inequitable benefit.
Tradeoffs
This provision balances the goal of encouraging disaster preparedness with the potential cost to federal tax revenue and the regressive nature of some tax deductions.
Section 2(a), new section 224(b) of the Internal Revenue Code of 1986
Annual Contribution Limit and Inflation Adjustment
This provision sets an initial annual limit of $4,500 on the amount an individual can deduct for contributions to a READY account. It also includes a mechanism to adjust this dollar amount for inflation in calendar years after 2025, using the cost-of-living adjustment formula from section 1(f)(3) of the IRS code, rounded to the next lowest multiple of $50.
Section 2(a), new section 224(c)(2) of the Internal Revenue Code of 1986
Eligible Uses for READY Account Funds
This section defines what expenses can be paid for using READY account funds without being taxed. It includes "qualified disaster mitigation measures" (such as installing impact-resistant windows, strengthening roofs, or elevating homes, as certified by a qualified industry professional) and "qualified disaster recovery costs" (repairing damage from fire, storm, or other casualty not covered by insurance). The Secretary, in consultation with FEMA, can determine additional eligible measures.
Section 2(a), new section 224(e) of the Internal Revenue Code of 1986
Tax-Free Distributions for Qualified Expenses and Penalties for Non-Qualified Use
This provision clarifies that distributions from a READY account used exclusively for qualified home disaster mitigation and recovery expenses are not included in gross income (i.e., they are tax-free). However, any amounts distributed that are not used for qualified expenses are included in gross income and are subject to an additional 20% penalty tax, similar to rules for other tax-advantaged accounts like HSAs. It also includes rules for excess contributions, rollovers, transfers upon divorce, and treatment after the account beneficiary's death.
This amendment specifies that no deduction for a casualty loss (under section 165(a)(3)) shall be allowed to the extent the taxpayer has made an expenditure from a READY account for costs related to that loss.
Section 2(d)(3), amending Section 165(h) of the Internal Revenue Code of 1986
Why it matters:This is standard legislative practice for ensuring consistency across different parts of the tax code, preventing taxpayers from receiving a double benefit (tax-free withdrawal from READY account and a casualty loss deduction) for the same expense.
Case for: Supporters argue this prevents double-dipping, ensuring fiscal responsibility and fairness in the tax system.
Case against: No specific opposition is typically raised against such conforming amendments, as they are standard practice to maintain tax code integrity.
Estimated impact: Prevents an unknown amount of potential double deductions, ensuring the tax expenditure of READY accounts is limited to the intended benefit.