IRS Guidance: Emergency Personal Expense and Domestic Abuse Survivor Distributions

On June 20, 2024, the IRS issued Notice 2024-55 addressing exceptions to the 10 percent additional tax for early withdrawals in the case of (1) “Emergency Personal Expense Distributions” (EPEDs), and (2) “Domestic Abuse Victim Distributions” (DAVDs) under certain qualified retirement plans, including 401(k) plans, as permitted by the SECURE 2.0 Act, effective as of January 1, 2024.

The SECURE 2.0 Act added several optional expanded in-service distribution provisions, including enhanced in-service withdrawals and expanded loans made in response to certain Federally declared disasters and for survivors of domestic abuse. See our blogs “IRS Releases Guidance on Disaster Relief Distributions and Loans under 401(k) Plans” and “Retirement Plan Assistance for Domestic Abuse Survivors” for more information.

Additionally, SECURE 2.0 added exceptions for:

• EPEDs (one per calendar year) of up to the lesser of: (i) $1,000; or (ii) the participant’s vested 401(k) account balance, minus $1,000; and
• DAVDs in a total aggregate amount of up to the lesser of: (i) $10,000 (indexed for inflation); or (ii) 50 percent of the participant’s vested 401(k) account balance.

EPEDs and DAVDs meeting the legal requirements are not subject to the additional 10 percent penalty tax.

Highlights of Notice 2024-55:

Domestic Abuse Victim Distributions:

• DAVDs are distributions made to a participant within a one-year period beginning on the date on which they are a victim of domestic abuse by a spouse or domestic partner.
• “Domestic abuse” generally includes:
  • Physical, psychological, sexual, emotional, or financial abuse, including efforts to control, isolate, humiliate, or intimidate the victim; or
  • Actions to undermine the victim’s ability to reason independently, including by means of abuse of the victim’s child or another family member living in the household.
• Plan administrators generally may rely on an employee’s written self-certification (which can be made electronically) that the employee is eligible for a DAVD.
• Participants generally may repay all or part of a DAVD within the 3-year period beginning on the day after the date that the distribution was received.
  • Repayments may be made to the plan from which the DAVD was taken, or to another eligible retirement plan (including an IRA) in which the individual is a beneficiary and to which a rollover may be made.

Emergency Personal Expense Distributions:

• EPEDs are distributions made for the purpose of meeting “unforeseeable or immediate financial needs relating to necessary personal or family emergency expenses.”
• Although this is a facts and circumstances determination for each individual, the Notice lists the following as examples of qualifying factors:
  • Medical care (including cost of medicine or treatment);
  • Accident or loss of property due to casualty;
  • Imminent foreclosure or eviction from a primary residence;
  • Burial or funeral expenses;
  • Automobile repairs; and
  • Any other necessary emergency personal expenses.
• Once an EPED is taken, another EPED is not available from the same plan for three calendar years, unless the participant fully repays the distributed amount, or contributes new deferrals equal to the distributed amount that has not been repaid.
• The same repayment and self-certification rules applicable to DAVDs (see above) also apply to EPADs.

EPEDs and/or DAVDs are optional provisions. Accordingly, plan sponsors are not required to provide either EPEDs or DAVDs, or they may provide one or not the other, at their discretion. Plan amendments to implement either feature are required, and are treated as discretionary amendments.

Background

Historically, non-retirement distributions from 401(k) plans have only been permitted under limited circumstances (for example, hardship distributions). Narrow exceptions have been made on a temporary basis (see our blog (example here), but these now expired provisions have been rare.

Under the Internal Revenue Code, an additional 10 percent penalty tax generally applies to 401(k) plan withdrawals or distributions that do not meet one of the strictly designated exceptions.

NOTE: This article is intended as a general overview of IRS Notice 2024-55 as it affects most 401(k) plans and is not meant to offer a comprehensive analysis of the guidance or its effect on other types of qualified retirement plans and/or individual retirement accounts (IRAs). As always, be sure to consult with your own ERISA attorney or other professional advisor for individualized advice with respect to your plan’s unique situation.