OPTIONAL FOR PLANS
Effective for: Distributions with respect to disasters for which the incident period begins on or after 01.26.2021
Applies to: IRAs, qualified plans (except DB plans), 403(b) plans, and governmental 457(b) plans

Plans may add a new distributable event for qualified disaster recovery distributions that is exempt from the 10% early withdrawal penalty. A qualified disaster recovery distribution is a distribution (1) made on or after the first day of the “incident period” of a “qualified disaster” and before the date that is 180 days after the “applicable date” with respect to such disaster, and (2) to an individual whose principal place of abode at any time during the incident period is located in a “qualified disaster area” and who sustained an economic loss by reason of the disaster.

For purposes of this rule, the following terms have the following meanings:

1. “Qualified disaster” means any disaster that the President has declared a major disaster under relevant law.
2. “Qualified disaster area” means the area with respect to which the major disaster has been declared.
3. “Incident period” means the period specified by FEMA as the period during which the disaster occurred.
4. “Applicable date” means the latest of: (a) the enactment of this rule, (b) the first day of the incident period, or (c) the date of the disaster declaration.

The aggregate amount of qualified disaster recovery distributions received by an individual with respect to any qualified disaster in all taxable years may not exceed $22,000.

The amount of the qualified disaster recovery distribution is recognized in the participant’s taxes over a three-year period (unless the participant elects otherwise) and may be repaid within three years after receipt.

SECURE 2.0 also allows someone who took a distribution that was to be used to purchase or construct a principal residence in a qualified disaster area during the period beginning 180 days before the incident period and ending 30 days after the end of the incident period to repay the distribution to the plan.

Further, SECURE 2.0 permits plan amendments to allow an individual whose principal place of abode is in a qualified disaster area, and who sustained an economic loss because of the qualified disaster, to take a plan loan up to $100,000 (instead of the normal $50,000) and to delay loan repayments.

OPTIONAL FOR PLANS
Effective for: Distributions made after 12.31.2023
Applies to: IRAs, qualified plans (except DB plans), 403(b) plans, and governmental 457(b) plans

Plans may add a new distributable event for emergency expense distributions that is exempt from the 10% early withdrawal penalty. The amount that may be treated as an emergency expense distribution by an individual in any calendar year may not exceed the lesser of (1) $1,000, or (2) the amount of the individual’s vested plan benefit that exceeds $1,000.

A distribution is eligible to be an emergency expense distribution if it is made for purposes of meeting unforeseeable or immediate financial needs relating to necessary personal or family emergency expenses. The plan administrator may rely on an employee’s written certification that the distribution qualifies. The Secretary of the Treasury may provide by regulations for exceptions where the plan administrator has actual knowledge to the contrary and procedures addressing misrepresentation.

The amount of an emergency expense distribution may be repaid to a plan or IRA within three years of receipt. If the amount is not fully repaid or if the aggregate amount of elective deferrals and employee contributions to the plan after such a distribution is made does not equal at least the amount not repaid, the individual may not take another emergency expense distribution during the immediately following three calendar years.

OPTIONAL FOR PLANS
Effective for: Distributions made after 12.31.2023
Applies to: IRAs, qualified plans (except DB plans or plans to which QJSA rules apply), 403(b) plans, and governmental 457(b) plans

Plans may add a new distributable event for domestic abuse distributions to domestic abuse victims that is exempt from the 10% early withdrawal penalty. The aggregate amount which may be treated as an eligible domestic abuse distribution may not exceed the lesser of (1) $10,000 (as indexed for inflation), or (2) 50% of the employee’s vested plan benefit.

A distribution is eligible as a domestic abuse distribution if it is made to an individual during the one-year period beginning on any date the individual is a victim of domestic abuse by a spouse or domestic partner. For this purpose, “domestic abuse” is defined broadly and includes, among other things, physical, psychological, sexual, emotional, or economic abuse.

The amount of a domestic abuse distribution may be repaid to a plan or IRA within three years of receipt.

The plan administrator may accept a participant’s certification as to being a victim of domestic abuse.

AFFECTED PLAN SPONSORS SHOULD BE AWARE OF CHANGE
Effective for: Distributions made after 12.29.2022
Applies to: IRAs, qualified plans, and 403(b) plans

Distributions made to an employee who is a terminally ill individual on or after the date the employee was certified by a physician as having a terminal illness are exempt from the 10% early withdrawal penalty. Notably, this provision does not establish a new distributable event for plans. In other words, the employee still has to qualify for a distribution under the plan’s general rules, (i.e., either an in-service withdrawal or a separation from service).

For this purpose, a “terminally ill individual” is someone who has been certified by a physician as having an illness or physical condition which can reasonably be expected to result in death in 84 months or less. An employee must furnish sufficient evidence and a physician certification to the plan administrator. Self-certification is not permitted.

The amount of a distribution to which this rule applies may be repaid to a plan or IRA within three years of receipt.

AFFECTED PLAN SPONSORS SHOULD BE AWARE OF CHANGE
Effective for: Distributions made after 12.29.2022
Applies to: Qualified plans and 403(b) plans covering private sector firefighters and governmental plans

Prior to SECURE 2.0, there was an exception to the 10% early withdrawal penalty for distributions by governmental plans to qualified public safety officers who separated from service after attaining age 50. SECURE 2.0 expands this exception to cover private sector firefighters and public sector corrections officers and forensic security employees.

In addition, SECURE 2.0 expands this exception to apply to distributions made to eligible individuals after separation from service and either attaining age 50 or 25 years of service under the plan.

OPTIONAL FOR PLANS
Effective for: Plan years beginning after 12.29.2022
Applies to: 401(k) plans, 403(b) plans, and 457(b) plans

In determining whether a distribution is upon the hardship of an employee (or, for purposes of a 457(b) plan, an unforeseeable emergency), a plan administrator may rely on written certification by the employee that the distribution is: (1) on account of a financial need of a type described in regulations to be an immediate and heavy financial need, and (2) not in excess of the amount required to satisfy such financial need and that the employee has no alternative means to satisfy such financial need.

Previous Treasury/IRS guidance permitted plan administrators to accept self-certification in most cases but required the participant to maintain records related to the hardship and provide them to the plan administrator upon request.

The Secretary of Treasury may provide by regulations for exceptions where the plan administrator has actual knowledge to the contrary of the employee’s certification and for procedures addressing misrepresentation.

OPTIONAL FOR PLANS
Effective for: Plan years beginning after 12.31.2023
Applies to: 403(b) plans

SECURE 2.0 makes changes to the 403(b) plan hardship distribution rules to conform to changes made to the 401(k) plan hardship distribution rules under the Bipartisan Budget Act passed in 2018.

These changes allow 403(b) plan hardship distributions to be taken from employee deferral, QNEC, and QMAC contribution sources, and earnings thereon. In addition, these changes allow 403(b) plans to permit hardship distributions without requiring employees to take available plan loans.

OPTIONAL FOR PLANS TO ALLOW SUCH DISTRIBUTIONS
Effective for: Distributions made after 12.29.2022
Applies to: IRAs, defined contribution plans, 403(b) plans, and governmental 457(b) plans

The initial SECURE Act created a new type of distribution where, in general, a participant can take up to $5,000 during the 12-month period beginning on the date the participant’s child is born or legally adopted. In addition, the law permitted participants who received these distributions to repay them to an employer plan or IRA.

However, the SECURE Act did not put a time deadline within which the repayment had to be made. SECURE 2.0 corrects this by establishing a three-year deadline starting on the date the distribution is received. For any distributions made prior to the passage of SECURE 2.0, the deadline for repayment is January 1, 2026.

AFFECTED PLAN SPONSORS SHOULD BE AWARE OF CHANGE
Effective for: Distributions made after 12.29.2022
Applies to: Governmental plans

Up to $3,000 of certain distributions from governmental plans to eligible retired public safety officers for health and long-term care insurance premiums is excludable from the gross income of the recipient. Prior to SECURE 2.0, the premiums had to be paid by the plan directly to the insurance company to qualify.

SECURE 2.0 changes the rule to allow the distribution to be made directly to the participant, who must then declare the premiums paid on his or her individual tax return.

AFFECTED PLAN SPONSORS SHOULD BE AWARE OF CHANGE
Effective for: Transfers, rollovers, and exchanges after 12.31.2023 and annuity distributions on and after 12.29.2022
Applies to: Qualified plans and 403(b) plans

There is an exception to the 10% early withdrawal penalty for a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the employee or the joint lives (or joint life expectancy) of the employee and his or her designated beneficiary. However, the exception does not apply when the series of payments is subsequently modified (other than by reason of death or disability) before (1) the close of the five-year period beginning with the date of the first payment and after the employee attains age 59½, or (2) the employee attains age 59½.

SECURE 2.0 clarifies that the exception to the penalty still applies if there is a rollover or transfer of all or a part of the periodic payments to another plan and the continuing periodic distributions from both plans maintain the substantially equal payments in the aggregate.