New IRS Guidance Addresses Two SECURE 2.0 Provisions: 

On June 20, the IRS published Notice 2024-55 (the “Notice”). The Notice explains SECURE 2.0 provisions regarding emergency personal expense distributions and domestic abuse victim distributions. If applicable requirements are satisfied, as explained in the Notice, the 10 percent penalty tax under section 72(t) of the Internal Revenue Code (the “Code”) does not apply to such distributions. That tax generally applies to any distribution received by a retirement plan participant before he or she attains age 59 ½.

Emergency Personal Expense Distributions

SECURE 2.0 provides that the term “emergency personal expense distribution” means any distribution made from a defined contribution plan to an individual to address unforeseeable or immediate financial needs relating to necessary personal or family emergency expenses. These distributions are subject to the following three limitations:

• Not more than one distribution per calendar year can be treated as an emergency personal expense distribution by any individual;
• Individuals can treat a distribution as an emergency personal expense distribution in any calendar year in an amount up to $1,000; and
• Special rules apply that limit individuals from taking subsequent emergency personal expense distributions.

Also under SECURE 2.0, plan administrators can rely on an individual’s written certification that he or she satisfies the conditions for an emergency personal expense distribution, rather than having the individual provide written proof. In addition, an individual generally may, at any time during the 3-year period beginning on the day after the date on which the distribution was received, repay an emergency personal expense distribution to an eligible retirement plan.

The Notice adds the following guidance:

• Whether an individual has an unforeseeable or immediate financial need relating to necessary personal or family emergency expenses is determined by the relevant facts and circumstances for each individual. Examples of such expenses include several of the categories involved in hardship distributions, as well as automobile repairs.
• If an individual treats a distribution as an emergency personal expense distribution in any calendar year, no amount of any subsequent distribution can be treated as an emergency personal expense distribution during the immediately following 3 calendar years with respect to that plan unless certain conditions are satisfied (e.g., the previous emergency personal expense distribution is fully repaid to the plan).
• Eligible plans can allow an amount attributable to elective, qualified nonelective, qualified matching, or safe harbor contributions to be distributed as an emergency personal expense distribution.
• An emergency personal expense distribution is not treated as an eligible rollover distribution. As a result, plans do not have to provide a notice under section 402(f) of the Code, and payors of the distribution do not have to withhold an amount equal to 20 percent of the distribution for taxes.
• If an eligible retirement plan does not permit emergency personal expense distributions but an individual receives an otherwise permissible distribution that meets the requirements of an emergency personal expense distribution, the individual can treat the distribution on his or her federal income tax return as an emergency personal expense distribution.

Domestic Abuse Victim Distributions

SECURE 2.0 provides that the term “domestic abuse victim distribution” is any distribution from an eligibledefined contribution plan to a domestic abuse victim if made during the 1-year period beginning on any date on which the individual is a victim of domestic abuse by a spouse or domestic partner. The term “domestic abuse” means 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.

SECURE 2.0 also provides that individuals can receive a distribution from an eligible retirement plan of up to the lesser of $10,000 (adjusted for inflation) or fifty percent of the individual’s vested account under the plan. Further, individuals generally may, at any time during the 3-year period beginning on the day after the date on which the distribution was received, repay a domestic abuse victim distribution to an eligible retirement plan. This type of distribution is not treated as an eligible rollover distribution, so neither the notice requirement under Code section 402(f) nor the Code’s mandatory tax withholding rules apply.

For that topic, the Notice adds the following guidance:

• Even if an eligible retirement plan does not permit domestic abuse victim distributions, an individual can treat an otherwise permissible distribution as a domestic abuse victim distribution.
• Plans can allow an amount attributable to elective, qualified nonelective, qualified matching, or safe harbor contributions to be distributed as a domestic abuse victim distribution.
• A distribution that an individual certifies as a domestic abuse victim distribution is treated as meeting the Code’s distribution restrictions. To meet the certification requirements, the individual could check the box on a distribution request form to certify that (1) he or she is eligible for a domestic abuse victim distribution; and (2) the distribution is made during the 1-year period beginning on any date on which the individual is a victim of domestic abuse. The certification must be provided in writing, and the individual can use the electronic delivery rules set forth in Treasury regulations under Code section 401(a) to provide the certification.

Finally, note that retirement plans do not have to allow emergency personal expense distributions or domestic abuse victim distributions. If a plan adopts either or both of those distribution options, however, it must be amended in accordance with the following deadlines, as applicable:

• Non-governmental qualified plans:  December 31, 2026.
• Collectively-bargained plans:  December 31, 2028.
• Governmental plans:  December 31, 2029.