In Notice 2024-55, the IRS recently provided Q&As on the SECURE 2.0 provisions that permit emergency personal expense distributions (EPEDs) and domestic abuse victim distributions (DAVDs) from an eligible retirement plan. Both types of distributions are exempt from the 10% early distribution penalty that applies when amounts are withdrawn from an IRA or other retirement plan before a participant reaches age 59 ½.
The notice confirms the following:
- EPEDs and DAVDs are optional.
- Self-certification is permitted.
- A plan that allows the distribution must allow repayment if certain requirements are satisfied.
- A participant may claim a distribution as an EPED or a DAVD on his or her individual tax return even if the distributing plan does not expressly permit them.
The guidance in the Q&As can be applied immediately. Note that although these optional provisions became effective January 1, 2024, formal plan amendments are not required until December 31, 2026, at the earliest.[1]
EPED requirements overview
SECURE 2.0 established EPEDs as a distribution option that “eligible retirement plans” may offer participants. An eligible retirement plan includes certain defined contribution plans — such as 401(k), profit sharing, 403(b) and governmental 457(b) plans — but excludes defined benefit plans.
An EPED can be used to meet an unforeseeable or immediate financial need relating to a participant’s necessary personal or family emergency expenses. This distribution is not subject to the 10% early distribution penalty.
A plan administrator may rely on an employee’s written certification that the conditions for an EPED have been met. In its recent notice, the IRS specifically asks for comments on 1) whether the IRS should adopt regulations providing exceptions to this rule permitting self-certification for EPEDs, and 2) procedures to address cases of employee misrepresentation.
Only one distribution per calendar year may be treated as an EPED, and the maximum EPED may not exceed the lesser of 1) $1,000 or 2) the amount that the participant’s vested benefit as of the date of the distribution exceeds $1,000 (if a participant’s vested account is less than $2,000). These distribution requirements are applied on a controlled group basis.
A participant may repay the EPED within three years from the day following the date that the EPED distribution was received.
If a distribution is received during a year, a participant may not receive another EPED during the following three calendar years unless the prior distribution is fully recontributed or the participant contributes elective deferrals and after-tax contributions that equal the amount of the EPED.
DAVD requirements overview
SECURE 2.0 also provides a penalty-free distribution option for victims of domestic abuse. Such distributions must be made within one year of a victim experiencing domestic abuse by a spouse or domestic partner.
