Of interest to 401(k) plan sponsors and administrators, the IRS recently issued Notice 2024-55, providing guidance on SECURE 2.0’s new exceptions—effective January 1, 2024—to the additional 10% tax on early qualified retirement plan distributions for emergency personal expenses and victims of domestic abuse.  Both types of distributions are optional and may be adopted through discretionary plan amendments. 

Emergency personal expense distributions are those made to an individual to meet unforeseeable or immediate financial needs relating to necessary personal or family expenses.  Participants are limited to one emergency personal expense distribution per calendar year, and the distribution cannot exceed $1,000 (not indexed for inflation) or, if less, the excess of the participant’s vested account balance.  In addition, once an emergency personal expense distribution is taken, the participant cannot take another emergency personal expense distribution during the following 3 calendar years unless the previous distribution has been repaid or the participant’s contributions to the plan at least equal the amount of the unpaid distribution.      

Domestic abuse victim distributions are those made to a domestic abuse victim during the 1-year period beginning on the date the individual is a victim of 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 abusing the victim’s child or another family member living in the household.  Domestic abuse victim distributions are limited to $10,000 (indexed for inflation) or, if less, 50% of the participant’s account balance.

Plan sponsors can rely on a participant’s written certification that the distribution is due to an emergency personal expense or being the victim of domestic abuse.  In addition, a participant must be allowed to repay any emergency personal expense or domestic abuse victim distribution during the 3-year period following the date the distribution was received if the participant is eligible to make rollover contributions.  Finally, such distributions are not treated as eligible rollover distributions, and Code Section 402(f) notices and 20% mandatory income tax withholding are not required.

The IRS has invited comments on all the matters discussed in the Notice, including whether exceptions should be created to plan sponsor reliance on participant certification and whether procedures to address employee misrepresentations should be included.

We are available to help plan sponsors understand and implement SECURE 2.0’s requirements.  If you have questions or need assistance, please contact a Jackson Lewis employee benefits team member or the Jackson Lewis attorney with whom you regularly work.