To take an emergency personal expense distribution, must a participant leave $1,000 in her account?

[Peter Gulia]

For 2024’s emergency personal expense distribution, Internal Revenue Code § 72(t)(2)(I)(iii) states:

DOLLAR LIMITATION.—The amount which may be treated as an emergency personal expense distribution by any individual in any calendar year shall not exceed the lesser of $1,000 or an amount equal to the excess of—

(I)    the individual’s total nonforfeitable accrued benefit under the plan (the individual’s total interest in the plan in the case of an individual retirement plan), determined as of the date of each such distribution, over

(II)  $1,000.

What does this mean?

Does it mean a participant whose whole account (let’s assume it’s all 100% vested) is $1,787 is restricted to $787 for her emergency personal expense distribution?

[Bri]

I think so - I read it as though the participant has to "leave 1,000 behind remaining in the plan"

[Peter Gulia]

What is an emergency personal expense distribution?

This is a payout to meet unforeseeable or immediate financial needs for necessary personal or family emergency expenses. You may take this only once each year. You may take up to $1,000 [2024] (counting all plans). But you must leave at least $1,000 in your account. You may recontribute to the plan the amount you receive within three years after you receive it. After you get an emergency personal expense distribution, you may not get another in the next three years until you repay into the plan the payout you received, or your later elective deferrals under the plan are at least as much as the payout you received.

Allowing for a need to write in plain language, is that an accurate explanation?

[Lou S.]

Wow, what a needless over complicated provision for such a small amount.

Couldn't they just say - If you have an emergency you can take up to $1,000. If you do so you can not do so again from the same plan for 3 years.

All the extra stuff is just screaming to mess something up somewhere.

 

[Peter Gulia]

No one in Congress asked for my view on the public policy merits or weaknesses.

I just hope I’m translating accurately the statute Congress wrote.

[Belgarath]

On 10/5/2023 at 5:16 PM, Peter Gulia said:

plain language

I once heard, a long time ago, that there was such a thing. I only see it now with expletives.