New IRS Guidance: Emergency Personal Expense and Domestic Abuse Victim ‎Distributions Under SECURE 2.0‎

On June 20, 2024, the Internal Revenue Service (“IRS”) released Notice 2024-55 (the “Notice”) offering guidance on two (2) new types of distributions exempt from the 10% early withdrawal penalty: emergency personal expense distributions and domestic abuse victim distributions.

Introduced by the SECURE 2.0 Act (“SECURE 2.0”), both types of distributions are optional and may be adopted through discretionary plan amendments by the SECURE 2.0 deadline (currently December 31, 2026).

This post discusses the rules and guidance pertaining to these new distribution types.

An “emergency personal expense distribution” (“EPED”) is a distribution made from an applicable eligible retirement plan to an individual to meet “unforeseeable or immediate ‎financial needs relating to necessary personal or family emergency expenses”. This is a facts and circumstances determination, and factors to consider include whether the participant (or family member) has expenses relating to medical care (including the cost of medicine or treatment), accident or loss of property due to casualty, imminent foreclosure or eviction from a primary residence, the need to pay for burial or funeral expenses, auto repairs, or any other necessary or personal expenses.

Participants may only receive one EPED per calendar year, and the distribution cannot exceed $1,000 (not indexed for inflation) or, if less, an amount equal to the participant’s total nonforfeitable account balance less $1,000. Once an EPED is taken, the participant cannot take another EPED during the following three (3) calendar years unless the previous distribution has been repaid to the plan or the participant’s contributions to the plan at least equal the amount of the unpaid distribution.

A “domestic abuse victim distribution” (DAVD”) is any distribution from an applicable eligible retirement plan to a domestic abuse victim if made during the one-year period beginning on any date on which 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 abuse of the victim’s child or another ‎family member living in the household.‎ Domestic abuse victims can withdraw up to the lesser of (1) $10,000 (as indexed for inflation) or (2) 50% of their vested plan balance.

The term “applicable eligible retirement plan” generally refers to defined contribution plans including 401(k) plans, Section 403(a) annuity plans, 403(b) plans, governmental 457(b) plans and IRAs; it does not include defined benefit plans or plans to which the spousal consent requirements of Sections 401(a)(11) and 417 apply (such as money purchase pension plans).

Key points in the Notice applicable to both EPEDs and DAVDs that are of interest to plan sponsors and administrators include—

• Plan administrators may rely on participants’ written certifications that they are eligible for an EPED or DAVD. For example, a participant can use a distribution request form to certify that he or she is an eligible domestic abuse victim, and that the distribution is being made during the one-year period beginning on any date on which the individual is a domestic abuse victim.
• EPEDs and DAVDs are deemed to meet the 401(k) plan distribution requirements. 401(k) plan sponsors can allow amounts attributable to elective, qualified nonelective, qualified matching, or safe harbor contributions to be included in the distribution.
• Because EPEDs and DAVDs are not treated as eligible rollover distributions, direct rollovers need not be offered, Code § 402(f) notices need not be provided, and no 20% mandatory income tax withholding is required from such distributions.
• An applicable retirement plan must accept repayment of EPEDs or DAVDs from the participant within a 3-year period following receipt if the following apply: (i) the plan permits such distributions, (ii) the participant received an EPED or DAVD from that plan and (iii) the participant is eligible to make a rollover contribution to that plan at the time of repayment.

The IRS is currently inviting comments on all issues covered in the Notice, specifically including whether to create exceptions to the rule allowing plan administrators to rely on employee certifications and procedures for cases of employee misrepresentation. The Notice also indicates that more changes may be reflected in upcoming regulations and invites general comments on distribution repayments. Both distribution types were effective January 1, 2024.

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