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Washington Perspective,For Individuals,For Plan Sponsors,Custom
July 29, 2024
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 * Guidance Issued for SECURE 2.0’s New Exceptions to the 10% Early Withdrawal
   Penalties


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.

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