Guidance Issued for SECURE 2.0’s New Exceptions to the 10% Early Withdrawal Penalties

What To Know:

• The IRS recently provided guidance on retirement plan distributions and loans pursuant to disaster relief under SECURE 2.0.

• The IRS issued Fact Sheet 2024-19 on May 3, providing guidance in the form of FAQ relating to rules for distributions from retirement plans and IRAs and for retirement plan loans for certain individuals impacted by federally declared major disasters.

• The FAQ relate to the SECURE 2.0 Act of 2022 provision that now provides for permanent ongoing disaster relief for certain distributions and loans in the case of federally declared major disasters. Prior to the changes made by SECURE 2.0, there was no disaster relief allowing these distributions and loans that applied generally for all major disasters.

• These distributions are known as qualified disaster recovery distributions and are optional for plan sponsors to provide. Participants have parameters to follow and may self-certify the criteria needed, relieving plans of administrative burdens.

• The FAQ are intended to provide general information to individuals, employers, and retirement plan service providers, as well as information on the following topics:

  • Taxation and reporting of qualified disaster recovery distributions.
  • Repayment of qualified distributions taken for the purpose of purchasing or constructing a principal residence in a qualified disaster area.
  • Loans from certain qualified plans.

For more information on SECURE 2.0 or other retirement policy issues, contact Erica McFarquhar, Deputy General Counsel, or Irica Solomon, Head of Government Affairs.