READY Accounts for Disaster Mitigation

Full Title:
READY Accounts Act

Summary#

The READY Accounts Act creates a new tax-preferred savings account for homeowners called a READY account. People could deduct up to $4,500 a year (adjusted for inflation) for money they put into these accounts. Money withdrawn tax-free from a READY account must be used for specified home disaster mitigation measures or for unreimbursed disaster repair costs to the taxpayer’s principal home. The law would start for tax years after December 31, 2024.

  • Main change: Adds a new Internal Revenue Code provision that lets individuals deduct contributions to READY accounts and exempts the account from tax while funds are used for qualifying home disaster work.
  • Limit: Annual deduction cap of $4,500 per person, indexed for inflation and rounded to the nearest $50.
  • Qualified uses: Payments for certain mitigation projects (for example, stronger roof connections, impact‑resistant windows, elevating a home) or unreimbursed repairs from fire, storm, or casualty. The Secretary of the Treasury, with FEMA consultation, would set technical criteria and can add measures.
  • Tax rules: Nonqualified withdrawals are included in income and receive a 20% additional tax. Rollovers between READY accounts are allowed under limits.
  • Account rules: Accounts must be trusts in the U.S. held by an approved trustee (a bank or other approved person) and cannot hold life insurance contracts. The account interest is nonforfeitable (the owner always owns it).

What it means for you#

  • Homeowners (principal residence): You could open a READY account and deduct up to $4,500 a year for cash you deposit. If you use the money for approved mitigation or uninsured repairs to your main home, withdrawals would be tax-free.
  • Homeowners needing repairs/mitigation: This could make it cheaper to save for qualifying projects because contributions reduce taxable income now and qualified withdrawals are tax-free.
  • Renters and non‑owners: The bill only applies to owners of a principal residence. Renters and owners of non‑principal homes are not eligible.
  • Banks and trustees: Banks or other approved trustees would need to offer and manage READY accounts and report contributions and distributions as the Treasury requires.
  • Taxpayers filing returns: You would claim the deduction on your tax return. The trustee may have to send reports to both you and the IRS about contributions and distributions.
  • People receiving insurance or other compensation: Repair costs already paid by insurance or other compensation are not qualifying recovery costs for tax-free withdrawal.

Expenses#

No publicly available information.

  • The bill text does not include a fiscal note or official cost estimate.
  • This change would likely reduce federal income tax receipts to the extent people take the new deduction. The amount is not estimated in the bill materials.
  • There could be administrative costs for the IRS to set rules, for trustees to register and report, and for FEMA and the Treasury to develop criteria and consultation processes. The bill does not estimate those costs.

Proponents' View#

  • The bill appears intended to encourage homeowners to save for disaster mitigation and for unreimbursed disaster repairs.
  • Supporters may argue this could increase household resilience by making mitigation projects more affordable.
  • Supporters may also say the accounts give a clear, tax-preferred way to fund repairs that are not covered by insurance, helping families recover faster after disasters.
  • The involvement of FEMA in setting technical criteria could help ensure mitigation measures match current disaster‑risk standards.

Opponents' View#

  • One concern is that the bill does not include a cost estimate, so it is unclear how much federal revenue would be lost and how that affects the budget.
  • The rules for what counts as a qualified mitigation measure rely on future guidance and certification by a “qualified industry professional.” It is unclear how strict or costly that certification process will be.
  • There may be extra paperwork and compliance costs for banks, account holders, and the IRS to run and monitor the accounts.
  • The benefit is limited to owners of a principal residence, which may favor homeowners (who tend to have higher incomes) over renters or owners of other property.
  • It is unclear how the program will prevent abuse or improper claims, for example if a listed mitigation measure is claimed but not properly installed or if insurance reimbursements are not correctly accounted for.