How Frequently Can Emergency Withdrawals Be Taken Under SECURE 2.0?

Q: Though I know the provision to allow for emergency distributions from retirement plans is not available until 2024, I’m a bit confused as to how frequently such distributions can be taken. Can the Experts clarify?

Kimberly Boberg, Taylor Costanzo, Kelly Geloneck and David Levine, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:

A: Of course! You are correct that, beginning in 2024, there will be a new type of retirement plan distribution for emergency personal expenses, which is defined as any distribution to an individual for purposes of meeting unforeseeable or immediate financial needs relating to necessary personal or family emergency expenses (participants may self-certify that they meet the definition). This distribution (which can generally be up to $1,000) will be exempt from the 10% early-distribution penalty and can be repaid within three years. Plan sponsors will need to decide whether to add this provision to their plan. If you do not amend your plan documents to include it, the normal plan distribution rules will apply, with no special category for emergency personal expenses.

There are two separate rules in Section 115 of SECURE 2.0 that would apply to distributions for emergency personal expenses. The first rule, toward the beginning of the provision, states that only one distribution per calendar year is permitted under any circumstance. Thus, if I take an emergency personal expense distribution in 2024, I must wait at least until 2025 to take another, regardless of circumstance.

However, there are circumstances in which a participant will have to wait much longer to take an additional distribution. That is because there is a second rule toward the end of the provision that states that a participant will have to wait until the fourth calendar year following the year of distribution (2028, in the case of a 2024 distribution), UNLESS either of the following two events occurs:

1. Total amount of elective deferrals/after-tax contributions since the distribution date equals or exceeds the distribution amount that has not been repaid; or
2. The distribution is repaid.

If one of these events occurred prior to the beginning of the fourth calendar year, then another emergency personal expense distribution would be permitted.

So if I took an emergency personal expense distribution in 2024, and my elective deferrals for the remainder of the year exceeded the distribution amount, I would be able to take another emergency personal expense distribution in 2025 (but not in 2024, due to the one-distribution-per-calendar-year rule).

NOTE: This feature is to provide general information only, does not constitute legal advice and cannot be used or substituted for legal or tax advice.

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