SECURE 2.0 New Distributable Events

Ian · January 27, 2023

Based on the language of SECURE 2.0, it appears that new distributions for those terminally ill can only be made when the person is otherwise eligible for a distribution. But other new distributions (e.g., emergencies and domestic abuse) create new distributable events. In either case, however, allowing any of these new distributions is optional.

Do you all agree, or do you read the law differently?

C. B. Zeller · January 27, 2023

Agreed, this section does not create a new distributable event, it only creates a new exemption from the 10% excise tax.

Ian · January 27, 2023

Thanks. To clarify, you mean the terminal illness distribution only -- not the others?

Also, what good is this if elective deferrals (and, in most plans, employer contributions) can't come out before 59 1/2 anyhow w/o hardship? (Doesn't seem they're adding this to the hardship withdrawal safe harbor.)

C. B. Zeller · January 27, 2023

Yes, I was only talking about the terminal illness distributions. Qualified disaster recovery distributions, emergency expense distributions, and domestic abuse distributions (did I miss any?) are all clearly new distributable events.

Peter Gulia · January 28, 2023

For thirteen kinds of distributions added or changed by SECURE 2019 and 2022, here’s my table to show whether:

the specified kind of distribution is an exception from a provision that restrains a distribution until the participant’s severance-from-employment or age 59½;

a plan’s administrator may rely on a claimant’s written certification that the claim meets conditions for the specified kind of distribution;

the specified kind of distribution is an exception from § 72(t)(1)’s additional income tax on a too-early distribution;

a distributee of the specified kind of distribution may repay the amount as a rollover contribution to an eligible retirement plan.

Distributions added or changed by SECURE 2019 and 2022

I.R.C. §	Kind of distribution (from an individual-account eligible retirement plan)	Early?[1]	Rely?[2]	Excuse?[3]	Repay?[4]	Applies[5]
72(t)(H)	Qualified birth or adoption distribution.	Yes	Yes	Yes	Yes	2020
72(t)(I)	Emergency personal expense distribution	Yes	Yes	Yes	Yes	2024
72(t)(J)	From a § 402A(e) emergency savings account	Yes	Yes	Yes	No	2024
72(t)(2)(K)	Eligible distribution to domestic abuse victim	Yes	Yes	Yes	Yes	2024
72(t)(2)(L)	Terminal illness	No	--	Yes	Yes	2023 [6]
72(t)(2)(M)	Qualified disaster recovery distribution	Yes	No	Yes	Yes	2021 [7]
72(t)(2)(N)	Qualified long term care distribution	No	--	Yes	No	2026 [8]
72(t)(10)	Qualified public safety employee age 50 or 25 years	No	--	Yes	No	2007
72(t)(11)	Qualified disaster recovery distribution	Yes	No	Yes	Yes	2021 [9]
139C	Qualified first responder retirement payments (disability-related)	No	--	No [10]	No	2027
401(a)(39)	Qualified long term care distribution	No	--	Yes	No	2026 [11]
401(k)(14)(C)	Hardship distribution (certification)	Yes	Yes	No	No	2023
402(l)(5)(A)	Governmental plan payment for safety officer’s health insurance	No	--	Yes	No	2023 [12]
403(b)	Hardship distribution (certification)	Yes	Yes	No	No	2024
457(d)(4)	Unforeseeable-emergency distribution (certification)	Yes	Yes	No	No	2023

2022 Dec. 29 © Guidance Publishers NOT tax or legal advice

[1] This column describes whether the specified kind of distribution is an exception from a provision that restrains a distribution until the participant’s severance-from-employment or age 59½.

[2] This column describes whether a plan’s administrator may rely on a claimant’s written “certification” that the claim meets conditions for the specified kind of distribution.

[3] This column describes whether the specified kind of distribution is an exception from § 72(t)(1)’s additional income tax on a too-early distribution.

[4] This column describes whether a distributee of the specified kind of distribution may repay the amount as a rollover contribution to an eligible retirement plan.

[5] A note about when a provision first applies assumes all relevant plan, limitation, and tax years are the calendar year.

[6] Internal Revenue Code of 1986 § 72(t)(2)(L) applies to a distribution made after December 29, 2022.

[7] The changes apply regarding disasters with incident periods that began on or after January 26, 2021.

[8] The change applies to distributions made after December 29, 2025.

[9] The changes apply regarding disasters with incident periods that began on or after January 26, 2021.

[10] Internal Revenue Code of 1986 § 139C provides an exclusion from gross income, which could affect the income subject to a § 72(t)(1) tax.

[11] The change applies to distributions made after December 29, 2025.

[12] The change applies to distributions made after December 29, 2022.

Distributions added or changed by SECURE 2019 and 2022.pdf

Ian · January 28, 2023

This is extremely valuable. Thanks so much!!

So, the exception to the 10% penalty for terminal illness would really only apply to those who terminate employment before 59 1/2.

AMDG · January 30, 2023

On 1/28/2023 at 4:11 PM, Ian said:

This is extremely valuable. Thanks so much!!

So, the exception to the 10% penalty for terminal illness would really only apply to those who terminate employment before 59 1/2.

The exception to the 10% penalty for terminal illness would really only apply to those who terminate employment before 55, right?

MDCPA · January 31, 2023

17 hours ago, AMDG said:

The exception to the 10% penalty for terminal illness would really only apply to those who terminate employment before 55, right?

Agree

Patricia Neal Jensen · January 31, 2023

Thanks so much, Peter!

Peter Gulia · February 7, 2023

Thanks. I added a note:

Widenings of which former employees might get this exception apply for a distribution after December 29, 2022. Providing this exception not only for age 50 but also for 25 years of service applies for a distribution after December 29, 2022.

I didn’t edit the reference to § 72(t)(10), which refers to both its subparagraphs. Subparagraph (A) states the exception from the too-early tax. Subparagraph (B) states the specially defined term qualified public safety employee. That definition is “[f]or purposes of this paragraph,”—that is, § 72(t)(10).

Yet, I see some awkwardness: Section 72(t)(10)(A) provides the exception from the too-early tax “to an employee who provides firefighting services” even if she was neither “any employee of a State or political subdivision of a State” within the meaning of § 72(t)(10)(B)(i) nor someone described in § 72(t)(10)(B)(ii).

That paragraph (10)’s heading now mentions “private sector firefighters” suggests Congress might have intended to provide this exception from the too-early tax not only to those who received the distribution from a governmental plan but also “to an employee who provides firefighting services[.]”

Distributions added or changed by SECURE 2019 and 2022.pdf

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