Leaderboard

This discussion is very informative. I have been considering taking advantage of this provision of SECURE 2.0. My wife has terminal brain cancer. She qualifies for social security disability insurance under the same language of prognosis defined in SECURE 2.0. But, my reading of the law does leave some unanswered questions. If she were to withdraw her 401(k) and submit the prognostic paperwork from her physician to the plan administrator, would we be required to repay the funds within three years to qualify for the 10% tax exemption? Or, is it only an option to refund the 401(k) within three years? When I spoke with her plan administrator a few months ago, they had little information on how they would verify the illness and prognosis. Their advice was to withdraw and submit the paperwork with our taxes. I'm not sure how that makes sense. I can't imagine that the IRS is verifying diagnoses. The language in this portion of the bill is so brief that it feels incomplete. Some resources interpreting the bill have stated that persons with a terminal illness can only withdraw when they are terminated from their job, or can only withdraw after 1/1/2024, or that it must be repaid within 3 years. I'm a physician and I have not had to deal with this for any patients. But, I'm hoping there is a clearer resource out there.

So Friday 12/29 right?

Peter, a strict reading of the provision would say the original distribution did not qualify as a distribution on account of a terminal illness because the participant did not furnish the physician's certification to the disbursing plan's plan administrator. What is a known unknown is the "form and manner as the Secretary may require". Your scenario is interesting because the participant only needs the distribution to be considered as attributable to a terminal illness so the individual can repay the amount. The Secretary could be permissive and allow for a repayment if the participant provides the documentation to the plan administrator receiving the payment. This will not help the 401(k) participant who paid the 10% penalty. I note that the 10% penalty is not withheld at the time of distribution but is calculated when the participant files a personal tax return. The Secretary could be permissive and allow the participant to self-report the terminally ill status on the participant's individual tax return at which time the 10% penalty would be treated as not applicable. Like so much else, we wait for guidance.

The loan limit applies within a controlled group of employer's retirement plans, so I think he is OK. I know there is some aggregation if the person is the business owner on the 401(k) side because he is also considered the "owner" of his 403(b) but not sure if that is only a 415 issue. If he is an owner I'd dig deeper, otherwise I think he's good to borrow.