SECURE 2.0 Act – Section 115. Withdrawals for Certain Emergency Expenses

SECURE 2.0 Act – Section 115. Withdrawals for Certain Emergency Expenses

Generally, an additional 10% tax penalty applies to early distributions from tax-preferred retirement accounts, such as 401(k) plans, unless an exception applies. Section 115 of the SECURE 2.0 Act (SECURE 2.0) provides such an exception for certain “emergency expenses” from eligible retirement plans.  

The new exception under Section 115 defines an emergency expense as an “unforeseeable or immediate financial need relating to necessary personal or family emergency expenses.” The retirement plan participant is responsible for self-certifying the qualifying event for the distribution, and only one distribution is allowed per year of up to $1,000. A participant would have the option to repay the distribution within 3 years.

While this new “Emergency Withdrawal” provision could be beneficial for some participants, there are rules and limitations to keep in mind. Participants will be disallowed from any additional Emergency Withdrawal distributions until one of the following conditions is met:

  • A prior distribution has been fully repaid,
  • Employee deferrals and any other type of employee contributions to the plan since the Emergency Withdrawal total at least as much as the amount distributed, or
  • 3 years have passed since the prior Emergency Withdrawal.

Section 115 of SECURE 2.0 is effective for retirement plan distributions made after December 31, 2023.

If you have any questions about SECURE 2.0, please contact a member of the Schneider Downs Retirement Solutions team at [email protected]

This article is part of a series highlighting the impact of SECURE 2.0 on retirement plan sponsors, participants and retirees. You can view our full catalog of SECURE 2.0 articles here.

About SECURE 2.0

SECURE 2.0 was signed into law by President Biden on Dec. 29, 2022, as part of a $1.7 trillion omnibus spending bill.

This massive piece of legislation builds on the foundation that was laid by the 2019 Setting Every Community Up for Retirement Enhancement (SECURE) Act to further improve upon the success of the private employer-based retirement system by making it easier for businesses to offer retirement plans and for individuals to save for retirement.

The full text of SECURE 2.0, including provisions that affect pension and cash balance plans, may be found on pages 2,046-2,404 of the omnibus Consolidated Appropriations Act of 2023

About Schneider Downs Retirement Solutions

Schneider Downs Retirement Solutions has experience in all facets of qualified and non-qualified plan delivery, which allows us to be flexible to the needs and direction of our clients. Our specialized team of advisers and consultants provides objective advice and expertise to help plan sponsors govern their retirement plans appropriately, mitigate risk, improve participant outcomes and support efficient and compliant plan operations.  

Schneider Downs Wealth Management Advisors, LP (SDWMA) is a registered investment adviser with the U.S. Securities and Exchange Commission (SEC). SDWMA provides fee-based investment management services and financial planning services, along with fee-based retirement advisory and consulting services. Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice. Registration with the SEC does not imply any level of skill or training.

 

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The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at [email protected].

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2023 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

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