Section 72

These exemptions should make employees more comfortable contributing to retirement plans and IRAs because they will have greater access to their benefits if needed.

The IRS recently issued Notice 2024-55 to provide guidance regarding these provisions.

Emergency distribution of personal expenses

Section 115 of SECURE 2.0 added a new IRC section 72

Whether a distribution qualifies as an emergency personal expense distribution depends on the facts and circumstances. Factors to consider include whether the individual has expenses related to medical care, accident or property loss due to casualties, immediate foreclosure or eviction from a primary residence, the need to pay for burial or funeral expenses, vehicle repairs, or any other necessary emergency or personal expenses.

A plan administrator may rely on an employee's certification for distribution purposes.

If an employer's plan does not allow emergency personal expense distributions, the employee may treat an allowable distribution as an emergency personal expense distribution.

The same rules for the repayment of a qualified birth or adoption distribution apply to the repayment of an emergency personal distribution. An employee or IRA owner can take the distribution within three years. The employee may not receive additional personal emergency distributions during the next three calendar years unless the personal emergency distribution has been repaid or the employee has subsequently made contributions at least equal to the portion of the personal emergency distribution that has not been repaid.

The personal emergency expense distribution is not an eligible rollback distribution. Thus, it is not subject to the 20% withholding applicable to an eligible return distribution.

Distributions of victims of domestic abuse

Section 314 of SECURE 2.0 added a new IRC Section 72

A victim of domestic abuse distribution is a distribution to a victim of domestic abuse made within the 1-year period beginning on any date the individual is a victim of domestic abuse by a spouse or domestic partner.

For this purpose, domestic abuse is physical, psychological, sexual, emotional or economic abuse, including attempts to control, isolate, humiliate or intimidate the victim or to undermine the victim's ability to reason independently, including abuse with the victim's child or another family member living at home.

This provision is only available for distributions up to the lesser of $10,000 (indexed) or 50% of the vested benefit.

An employee or IRA owner can take the distribution within three years.

A plan administrator may rely on an employee's certification for distribution purposes.

If an employer's plan does not allow a domestic abuse victim distribution, the employee may treat an allowable distribution as a domestic abuse victim distribution.

The distribution of victims of domestic abuse is not an acceptable distribution for change. Thus, it is not subject to the 20% withholding applicable to an eligible return distribution.