READY Accounts Act
The READY Accounts Act would create a new tax-advantaged Savings/Tax deferment arrangement called Residential Emergency Asset-accumulation Deferred Taxation Yield (READY) accounts. Individuals could deduct from their taxable income cash contributions up to an annual limit (initially $4,500, with future inflation adjustments and rounding rules). The contributed funds would be held in a dedicated READY account (a trust) for the account beneficiary and could be used to pay for qualified home disaster mitigation and recovery expenses. Qualified expenses include a broad set of prevention and recovery measures for a primary residence damaged by disasters (e.g., roofing upgrades, window/door improvements, elevating a home, weatherproofing, and other measures certified by a professional and deemed appropriate by FEMA/Secretary). Distributions used for these qualified expenses are tax-free; other distributions are taxed as ordinary income and, in some cases, face an extra 20% tax. The bill also includes rules on excess contributions, rollovers, divorce/divorce-related transfers, death provisions, reporting requirements, penalties for non-qualified use, and enforcement provisions. The effective date applies to taxable years beginning after enactment.
Key Points
- 1Deduction and annual limit
- 2- Individuals may deduct cash contributions to a READY account for the year, up to $4,500 (indexing for inflation after 2026 and rounding to the nearest $50).
- 3What READY accounts are
- 4- A READY account is a U.S. trust dedicated to paying qualified home disaster mitigation and recovery expenses for the account beneficiary, with strict rules: cash contributions only (except certain rollovers), a bank or qualified institution as trustee, no life insurance, assets kept separate, and the beneficiary’s interest is nonforfeitable.
- 5Qualified expenses
- 6- Qualified home disaster mitigation measures and qualified disaster recovery costs for the taxpayer’s principal residence. The list of measures includes roofing upgrades, window/door protections, roof deck strengthening, attic/ventilation improvements, elevating the home, anchoring, code-upgrade improvements, and other measures the Secretary (in consultation with FEMA) deems appropriate and certified by a qualified industry professional.
- 7Tax treatment of accounts and distributions
- 8- READY accounts are generally exempt from income tax as long as they remain READY accounts; distributions used exclusively for qualified home expenses are not taxable. Distributions used for non-qualified purposes are includible in gross income, and a 20% additional tax applies to includible amounts in the taxable year. Rollovers to another READY account within 60 days are allowed and treated specially for timing.
- 9Excess contributions and compliance
- 10- Excess contributions are addressed through a specific excess-contribution rule and related reporting. There are also rules extending to other tax code provisions (e.g., prohibited transactions) to cover READY accounts, plus an added exemption for certain transactions related to READY accounts under prohibited-transaction rules.
- 11Administrative and implementation details
- 12- The Secretary may require reporting by trustees and beneficiaries and establish regulations to administer the program and prevent abuse. The bill also includes conforming amendments to other code sections to incorporate READY accounts into existing frameworks (e.g., deductions, tax treatment on certain losses, and coordination with other favored accounts).
- 13Effective date
- 14- The act would apply to taxable years beginning after enactment.