Emergency Personal Expense and Domestic Abuse Victim Distributions

An emergency personal expense distribution is any distribution made from an applicable plan to an individual for purposes of meeting unforeseeable or immediate financial needs relating to necessary personal or family emergency expenses. For this purpose, applicable plans include qualified plans, 403(b) plans, governmental 457(b) plans, and IRAs, but do not include defined benefit plans.

The IRS said that whether circumstances qualify for an emergency personal expense distribution are determined by the relevant facts and circumstances. The IRS noted that factors to be considered include, but are not limited to, whether the individual or a family member of the individual has expenses related to:

• Medical care (including the cost of medicine or treatment that would be deductible under the Code, determined without regard to the limitations on deductibility);
• Accident or loss of property due to casualty;
• Imminent foreclosure or eviction from a primary residence;
• The need to pay for burial or funeral expenses;
• Auto repairs; or
• Any other necessary emergency personal expenses.

A plan administrator may rely on an employee’s written certification (which may be electronic) that the employee satisfies the conditions for an emergency personal expense distribution. However, the Secretary of the Treasury may publish regulations with exceptions to this reliance and for procedures addressing cases of misrepresentation.

These distributions are subject to three limitations:

1. Only one distribution to an individual per calendar year may be treated as an emergency personal expense distribution.
2. The amount that may be treated as an emergency personal expense distribution in any calendar year may not exceed the lesser of (a) $1,000, or (b) the excess of the individual’s total vested benefit under the plan (or total interest in the IRA) as of the date of the distribution over $1,000.
3. If an individual receives an emergency personal expense distribution from a plan/IRA in any calendar year, the individual cannot treat any subsequent distribution as an emergency personal expense distribution during the immediately following three calendar years with respect to that plan/IRA unless (a) the amount is fully repaid to the plan/IRA or (b) the aggregate amount of the individual’s elective deferrals or employee contributions to the plan/IRA after the distribution is at least equal to the amount of the distribution that was not repaid.

A domestic abuse victim distribution is any distribution from an applicable plan to a domestic abuse victim if made during the one-year period beginning on any date on which the individual is a victim of domestic abuse by a spouse or domestic partner.

For this purpose, “domestic abuse” is physical, psychological, sexual, emotional, or economic abuse, including efforts to control, isolate, humiliate, or intimidate the victim, or 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. Applicable plans include qualified plans, 403(b) plans, governmental 457(b) plans, and IRAs, but do not include defined benefit plans or plans to which the spousal consent and QJSA/QPSA rules apply.

A domestic abuse victim distribution may be up to the lesser of (1) $10,000 (indexed for inflation) and (2) 50% of the value of the participant’s vested benefit under the plan. The annual inflation-adjusted amounts will be provided in future IRS bulletins.

A plan administrator may rely on a participant’s written certification (which may be electronic) that the employee is eligible for a domestic abuse victim distribution and the distribution is made during the one-year period beginning on any date on which the individual is a victim of domestic abuse. The IRS said that this could be provided by checking a box on the distribution request form with these certifications.

Plan sponsors may add emergency personal expense distributions or domestic abuse victim distributions as new distributable events under their plans. These distributions are not treated as eligible rollover distributions for purposes of the direct rollover rules, the notice requirements, or the mandatory withholding rules. Withholding requirements applicable to distributions that are not eligible for rollover apply.

A participant may repay an emergency personal expense distribution or domestic abuse victim distribution at any time during the three-year period beginning on the day after the date the distribution was received to an applicable plan in which the individual participates and to which a rollover can be made. Repayment may not exceed the aggregate amount of the distribution. The plan that paid the distribution to the participant must accept a repayment if the individual is eligible to make a rollover contribution to the plan at the time of repayment.

Repayment to a plan is treated as if the individual received the distribution as an eligible rollover distribution and transferred it to an eligible retirement plan in a direct trustee-to-trustee transfer within 60 days of the distribution. Repayment to an IRA is treated as if the individual received the distribution as described in the rules related to rollover contributions to IRAs and transferred the amount in a direct trustee-to-trustee transfer within 60 days of the distribution.

If a plan sponsor does not amend the plan to permit emergency personal expense distributions and/or domestic abuse victim distributions, an employee who is otherwise eligible to receive a plan distribution, (i.e., in-service, hardship, or termination) can still claim the exemption from the 10% early withdrawal tax.

They can do this on their individual federal income tax return by filing a claim on Form 5329. In addition, in these circumstances, an individual can still then choose to repay the amount to an IRA pursuant to the rules for repayments.

These distribution types became available under SECURE 2.0 for distributions after December 31, 2023. Sponsors of applicable plans may, but do not have to, add one or both of these distribution types to their plans.