New Guidance on Emergency Personal Expense Distributions

2024-07-19

Reading time: 2 minutes, 30 seconds In late 2022, Congress passed the Retirement Savings for Americans Act, also known as the SECURE Act 2.0, designed to make it easier to save for retirement. The legislation included over 90 provisions targeting various aspects of employer sponsored retirement plans with effective dates ranging from 2022 through 2026. … Continued

Reading time: 2 minutes, 30 seconds

In late 2022, Congress passed the Retirement Savings for Americans Act, also known as the SECURE Act 2.0, designed to make it easier to save for retirement. The legislation included over 90 provisions targeting various aspects of employer sponsored retirement plans with effective dates ranging from 2022 through 2026. The provisions included the introduction of new tax credits, plan eligibility changes, employee contribution changes, employer contribution updates, the introduction of new participant disclosures, and changes to plan distribution rules. There were also various administrative updates designed to make plan administration less costly and easier.

Given the number of changes, it is not surprising that many plan sponsors have been waiting for additional guidance from the IRS before implementing the updates. Last month, the agency issued Notice 2024-55 which offers new guidance on emergency personal expense distributions. A number of details were provided including which plan types are eligible, distribution limitations (dollar amount and frequency), and repayment information. It also provides guidance for distributions to victims of domestic abuse including dollar limitations, frequency, and repayment terms. Plan sponsors have been awaiting these details prior to deciding whether to offer the benefit. To help clients, prospects, and others, JLK Rosenberger has provided a summary of the key details below.

Emergency Personal Expense Distributions

This distribution is available to plan participants that have recently experienced an unforeseeable or immediate need driven by a necessary personal or family emergency. It is available to workers participating in 401(k), 403(b), 403(b) annuity contract, governmental 457(b), or an Individual Retirement Account (IRA). When determining whether an individual has an immediate need, plan sponsors will need to consider the relevant facts and circumstances of each request. However, expenses related to medical care, accident or loss of property due to casualty, imminent foreclosure or eviction from a primary residence, funeral and burial expenses, and emergency auto expenses typically qualify.

An individual may take only one emergency personal expense distribution per year and the maximum amount is limited to the lesser of the total accrued plan benefit or $1,000. No additional emergency distributions may be taken in the immediate 3 years unless the distribution is repaid or the amount of elective/employer contributions made from the distribution date equals the amount taken. Finally, it can be repaid all at once or in increments over the same period. It is important to note that these distributions are exempt from the 10% early withdrawal penalty but still must be included in the participant’s gross income.

Domestic Abuse Victim Distributions

This distribution type is available to plan participants who have experienced physical, psychological, emotional, or economic abuse, including efforts to isolate, humiliate, or intimidate the victim by a spouse or partner. It also includes actions designed to undermine the ability to reason independently, including through abuse of the victim’s child or others living in the household. The maximum amount is limited to the lesser of $10,000 (indexed for inflation) or 50% of the present value of accrued plan benefits.

The distribution may be taken during the one-year period starting on the date in which the abuse event(s) occurred. It is important to note that while these distributions are not subjected to the 10% early withdrawal penalty, the amount must be included in gross income. Full or partial repayment is permitted at any time during the three-year period after the disbursement date. It is important to note, this benefit is offered at the discretion of the plan since there is no requirement to participate.

We’re Here to Help

These new distribution types are designed to help those facing unpleasant and unexpected circumstances. The recently issued guidance provides important information to plan sponsors and participants about these new benefits. If you have questions about the information outlined above, or need assistance with your next plan audit, JLK Rosenberger can help. For additional information call 818-334-8645, or click here to contact us. We look forward to speaking with you soon.