In Notice 2024-55, the IRS recently provided Q&As on the SECURE 2.0 provisions that permit emergency personal expense distributions (EPEDs) and domestic abuse victim distributions (DAVDs) from an eligible retirement plan. Both types of distributions are exempt from the 10% early distribution penalty that applies when amounts are withdrawn from an IRA or other retirement plan before a participant reaches age 59 ½.
The notice confirms the following:
The guidance in the Q&As can be applied immediately. Note that although these optional provisions became effective January 1, 2024, formal plan amendments are not required until December 31, 2026, at the earliest.[1]
SECURE 2.0 established EPEDs as a distribution option that “eligible retirement plans” may offer participants. An eligible retirement plan includes certain defined contribution plans — such as 401(k), profit sharing, 403(b) and governmental 457(b) plans — but excludes defined benefit plans.
An EPED can be used to meet an unforeseeable or immediate financial need relating to a participant’s necessary personal or family emergency expenses. This distribution is not subject to the 10% early distribution penalty.
A plan administrator may rely on an employee’s written certification that the conditions for an EPED have been met. In its recent notice, the IRS specifically asks for comments on 1) whether the IRS should adopt regulations providing exceptions to this rule permitting self-certification for EPEDs, and 2) procedures to address cases of employee misrepresentation.
Only one distribution per calendar year may be treated as an EPED, and the maximum EPED may not exceed the lesser of 1) $1,000 or 2) the amount that the participant’s vested benefit as of the date of the distribution exceeds $1,000 (if a participant’s vested account is less than $2,000). These distribution requirements are applied on a controlled group basis.
A participant may repay the EPED within three years from the day following the date that the EPED distribution was received.
If a distribution is received during a year, a participant may not receive another EPED during the following three calendar years unless the prior distribution is fully recontributed or the participant contributes elective deferrals and after-tax contributions that equal the amount of the EPED.
SECURE 2.0 also provides a penalty-free distribution option for victims of domestic abuse. Such distributions must be made within one year of a victim experiencing domestic abuse by a spouse or domestic partner.
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.
Similar to an EPED, a DAVD may be made from certain plans such as 401(k), 403(b) and governmental 457(b) plans but are not allowed from defined benefit plans or plans subject to the spousal consent requirements (e.g., a money purchase plan).
A plan administrator may rely on the participant’s certification that the distribution meets the DAVD requirements. A domestic abuse victim is allowed to withdraw up to $10,000 (indexed for inflation) or 50% of his or her vested account balance, whichever is less. A plan sponsor is only required to monitor distributions made to a participant from plans maintained by employers in the controlled group.
The special tax and repayment rules that apply to EPEDs also apply to DAVDs. That is, in cases where a plan does not provide for DAVDs, individuals may treat a distribution as a DAVD on their federal income tax return up to legal limits, and they may repay DAVDs within three years from the date they were received.
Plan sponsors should review the recent guidance and decide whether they intend to offer these optional EPED and DAVD features. In addition, sponsors should consult with their plans’ recordkeepers to ensure the recordkeepers are prepared to administer these provisions.
| Title | File Type | File Size |
|---|---|---|
| Insider August 2024 | .2 MB |
