The Department of the Treasury and the Internal Revenue Service (IRS) recently released Notice 2024-55, offering new guidance on the SECURE 2.0 Act. This notice, issued on June 20, 2024, addresses two new types of distributions exempt from the 10% early withdrawal penalty: emergency personal expense distributions and domestic abuse victim distributions. The amendments apply to distributions made after December 31, 2023. You can find the release here – chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://www.irs.gov/pub/irs-drop/n-24-55.pdf
Key Points from Notice 2024-55
1. Emergency Personal Expense Distributions:
– Purpose: To cover unforeseeable or immediate financial needs related to personal or family emergencies.
– Limits: One distribution per year, up to $1,000, with specific conditions for subsequent distributions.
– Self-Certification: Participants can self-certify their eligibility, and plans must accept repayments within three years if certain conditions are met.
2. Domestic Abuse Victim Distributions:
– Purpose: To provide financial relief to individuals who are victims of domestic abuse by a spouse or domestic partner.
– Limits: Up to $10,000 (indexed for inflation) or 50% of the participant’s vested accrued benefit.
– Self-Certification: Participants can certify their eligibility, and plans must accept repayments within three years if certain conditions are met.
Request for Comments
The Treasury and IRS are seeking comments on all aspects of the 10% early distribution penalty and its exceptions. Specific areas of interest include:
– Whether exceptions to the self-certification rule should be made.
– How to handle special repayment rules for various distributions.
– Whether plan administrators should rely on an individual’s certification regarding repayments.
Comments are due by October 7, 2024.
Detailed Guidance on Emergency Personal Expense Distributions
Notice 2024-55 clarifies the following for emergency personal expense distributions:
– Eligibility: Determined by relevant facts and circumstances, including medical care expenses, casualty losses, foreclosure or eviction threats, funeral expenses, auto repairs, and other necessary emergency expenses.
– Optional for Plans: It is optional for plans to permit these distributions, and amendments are discretionary.
– Self-Certification: Plan administrators can rely on written certifications provided by employees.
– Repayments: Must be accepted by plans if the plan permits emergency personal expense distributions, the distribution was made from that plan, and the individual is eligible to make a rollover contribution at the time of repayment.
Detailed Guidance on Domestic Abuse Victim Distributions
For domestic abuse victim distributions, Notice 2024-55 includes:
– Eligibility: Domestic abuse is broadly defined, including physical, psychological, sexual, emotional, or economic abuse.
– Optional for Plans: Permitting these distributions is optional, and plan amendments are discretionary.
– Self-Certification: Participants can self-certify their eligibility through written certification, which may be provided electronically.
– Repayments: Similar to emergency personal expense distributions, plans must accept repayments if specific conditions are met.
Conclusion
Notice 2024-55 provides comprehensive guidance on the new SECURE 2.0 provisions for emergency personal expense distributions and domestic abuse victim distributions, offering relief from the 10% early distribution penalty. Treasury and IRS are inviting comments to refine these rules further, aiming to balance flexibility for participants with the need to prevent misuse of the provisions. The deadline for comments is October 7, 2024.
This guidance aligns with previous notices on similar distribution rights, ensuring consistency and clarity for plan administrators and participants.
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