The IRS issued Notice 2024-55, detailing SECURE 2.0’s new exceptions to the 10 percent tax on early retirement plan distributions for emergency personal expenses and victims of domestic abuse, which took effect on January 1, 2024. These optional distributions can be adopted through discretionary plan amendments.
The detailed guidance in the form of questions and answers provides clarity on some of the following key points:
- What constitutes an emergency personal expense distribution and what is a domestic abuse victim distribution;
- How to determine whether an expense is an unforeseeable or immediate financial need relating to necessary personal or family emergency expenses;
- Which types of plans are eligible to permit an emergency personal expense or domestic abuse distribution;
- Whether an individual may repay an emergency personal expense or domestic violence distribution to an applicable eligible retirement plan; and
- Whether an employer can rely on a written certification from an employee that the employee is eligible for an emergency personal expense or domestic abuse distribution.
For background, SECURE 2.0 contains provisions for an exception for certain distributions for emergency expenses, which are unforeseen immediate financial needs relating to personal or family emergency expenses and do not require a special account. Only one distribution of up to $1,000 is permissible per year, and a taxpayer has the option to repay the distribution within three years. No further emergency distributions may be made during the three-year repayment period until any amounts previously taken are repaid. The employer may rely on an employee’s written certification that the employee is facing a qualifying emergency personal expense, absent actual knowledge to the contrary. SECURE 2.0 would also permit penalty-free withdrawals of up to $10,000 (adjusted for inflation) or 50 percent of the value of the vested amount, for participants who need the funds in cases of domestic abuse, during the one-year period beginning on the date the individual is a victim of domestic abuse by a spouse or domestic partner.
The IRS has invited comments on the guidance in the Notice; in particular, on whether they should adopt regulations providing exceptions to the rule that a plan administrator may rely on an employee’s certification relating to emergency personal expense distributions and procedures to address cases of employee misrepresentation.
Next Steps
Employers who would like to submit comments should do so in writing on or before October 7, 2024, and should include a reference to Notice 2024-55. Comments may be submitted electronically via the Federal eRulemaking Portal at https://www.regulations.gov (type “IRS Notice 2024-55” in the search field on the Regulations.gov home page to find this notice and submit comments). Alternatively, comments may be submitted by mail to:
Internal Revenue Service
Attn: CC:PA:LPD:PR (Notice 2024-55)
Room 5203
P.O. Box 7604
Ben Franklin Station
Washington, D.C. 20044
Given the numerous provisions attached to SECURE 2.0, it is strongly recommended that employers work closely with their retirement plan professionals and their employee benefits counsel to determine which changes may be relevant to their circumstances. Plan administrators must ensure their plans are being operated in compliance with applicable SECURE 2.0 provisions as of the various provision effective dates.
Employers should be mindful that adoption of these provisions may require amendments to existing retirement plans and offerings many of which must be adopted on or before the last day of the first plan year beginning on or after January 1, 2025 (January 1, 2027, for governmental and applicable collectively bargained plans).
