IRS releases Q&As on two new SECURE 2.0 distributions 

June 25, 2024

 

IRS Notice 2024-55 provides guidance on implementing two new defined contribution plan distribution options under the SECURE 2.0 Act of 2022 (Div. T of Pub. L. No. 117-328). The notice addresses SECURE 2.0’s penalty-free distributions for individuals who have emergency personal expenses or have experienced domestic abuse. Although much of the notice reiterates the law’s provisions in a Q&A format, IRS has clarified a few items of interest to plan sponsors. The notice includes a request for comments by Oct. 7.

Starting in 2024, sponsors of 401(k), 403(b) and governmental 457(b) plans can offer distributions of up to $1,000 to individuals who incur emergency personal expenses and up to $10,000 (indexed for inflation after 2024) to domestic abuse victims. These distributions are exempt from the Internal Revenue Code’s 10% penalty tax on early withdrawals. Sponsors may offer these distributions even if the participant hasn’t otherwise experienced a distributable event (e.g., severance from employment). For more information on these and other penalty-free distribution options available under SECURE 2.0, see Taking a closer look at SECURE 2.0’s penalty-free distribution provisions (March 13, 2023).

Repayment. SECURE 2.0 says that participants who take emergency or domestic abuse distributions may repay them to an eligible retirement plan or individual retirement arrangement (IRA) within three years. Repayments are treated as eligible rollover contributions. Although plans aren’t required to offer either of the new distribution options, the notice clarifies that plans must accept repayment of these distributions if all of the following apply:

• The plan permits the particular type of distributions the participant wants to repay.
• The participant received that type of distribution from the plan.
• The participant is eligible to make a rollover contribution to the plan.

Self-certification. SECURE 2.0 states explicitly that plan administrators “may rely on an employee’s written certification” for emergency personal expense distribution. For domestic abuse victim distributions, the statute says that participants can certify they’re eligible but doesn’t say explicitly that the certification has to be in writing or that plan administrators may rely on it. The notice clarifies that employees must certify eligibility for the domestic abuse victim distributions in writing, and for both types of distributions, sponsors can rely on IRS’s electronic delivery rules for participant elections. The notice adds that for domestic abuse victim distributions, checking a box on the distribution request form is sufficient.

IRS anticipates issuing regulations addressing SECURE 2.0’s new penalty-free distributions. The agency is particularly interested in comments addressing whether those regulations should provide exceptions to the rule that permits employee self-certification in cases of employee misrepresentation. IRS also has requested comments on issues related to implementing repayments. Comments are due by Oct. 7.

• Notice 2024-55 (IRS, June 20, 2024)

• User’s guide to SECURE 2.0 (regularly updated)
• Taking a closer look at SECURE 2.0’s penalty-free distribution provisions (March 13, 2023)