Guidance Issued for SECURE 2.0’s New Exceptions to the 10% Early Withdrawal Penalties

July 29, 2024

The IRS issued Notice 2024-55, providing guidance on the implementation of two new exceptions to the 10% early withdrawal penalties under IRC § 72. Sections 115 and 314 of the SECURE 2.0 Act of 2022 created emergency personal expense distributions and domestic abuse victim distributions, respectively. These provisions are optional for plan sponsors to adopt and are effective for distributions after Dec. 31, 2023.

Emergency Personal Expense Distributions.
Applicable to emergency personal expense distributions made after Dec. 31, 2023, these distributions are includible in gross income but will not be subject to a 10% early withdrawal penalty. There are three statutory limitations to these distributions:

• Only one distribution is permitted per calendar year.
• Distributions cannot exceed $1,000.
• There are limitations on subsequent emergency personal expense distributions.

Plan administrators are permitted to rely on a participant’s written self-certification that they satisfy the conditions for an emergency personal expense distribution. To qualify for an emergency personal expense distribution, the participant must face an “unforeseeable or immediate financial need relating to necessary personal or family emergency expenses.” Notice 2024-55 explains that this is a facts and circumstances determination and provides six factors to take into consideration. These distributions may be repaid within the three-year period beginning the date after the distribution was received. To take an additional emergency personal expense distribution in a subsequent calendar year, the participant must have fully repaid the distribution or made contributions at least equal to the previous emergency personal expense distribution. Plans are not required to allow emergency personal expense distributions, as it is an optional provision; however, if a plan does permit these distributions, it must allow repayment.

Domestic Abuse Victim Distributions.
SECURE 2.0 added a domestic abuse victim distribution as a new exception to the 10% early withdrawal penalty. Within one year of the date on which an individual is a victim of domestic abuse by a spouse or domestic partner, they may take a domestic abuse victim distribution of up to $10,000. This amount is includible in gross income and will be indexed for inflation in years after 2024. Domestic abuse is defined as “physical, psychological, sexual, emotional, or economic abuse, including efforts to control, isolate, humiliate, or intimidate the victim, or to undermine the victim’s ability to reason independently, including by means of abuse of the victim’s child or another family member living in the household.” Participants self-certify whether a distribution meets the requirements to be a domestic abuse victim distribution. These distributions may be repaid at any time during the three-year period beginning on the day after the date the distribution was received. As with emergency personal expense distributions, plans are not required to permit domestic abuse victim distributions, but if they do offer these distributions, repayment must be permitted.

Request for Comments.
The IRS indicates it continues to work on regulations relating to the exceptions to the 10% additional tax under Section 72(t), like the terminal illness distribution. In addition to comments on emergency personal expense distributions and domestic abuse victim distributions, the notice seeks comments relating to repayments and procedures for determining whether a repayment meets the applicable requirements, among other things. Comments are due on or before Oct. 7, 2024.

For more information on SECURE 2.0 or other retirement policy issues, contact Erica McFarquhar, Deputy General Counsel, or Irica Solomon, Head of Government Affairs.