IRS Issues New Guidance on Early Distribution Exceptions Under SECURE 2.0 Act

Late last week, the Internal Revenue Service (IRS) released important guidance regarding exceptions to the 10% tax on early distributions from retirement accounts.

These exceptions, part of the SECURE 2.0 Act, specifically address emergency personnel expenses and victims of domestic abuse.

The SECURE 2.0 Act, signed into law in December 2022, aims to improve retirement savings options for Americans. One of its provisions allows certain individuals to access their retirement funds without incurring the usual 10% early withdrawal penalty.

Under this new guidance, qualified emergency personnel can now withdraw up to $10,000 annually from their retirement accounts penalty-free to cover emergency expenses. This provision applies to firefighters, law enforcement officers, and emergency medical services professionals.

Additionally, the guidance outlines how victims of domestic abuse can withdraw up to $10,000 or 50% of their account balance, whichever is less, without facing the early withdrawal penalty. This provision aims to provide financial support to individuals leaving abusive situations.

It’s important to note that while these distributions avoid the 10% penalty, they are still subject to regular income tax. The IRS guidance provides clarity on how to report these distributions and claim the exception on tax returns.

This new guidance represents a significant step in making retirement savings more flexible for those facing specific hardships. As always, individuals considering early withdrawals should consult with a financial advisor to understand the full implications of these decisions.

For more detailed information, taxpayers and financial professionals should refer to the official IRS documentation.