On June 20, the Internal Revenue Service (IRS) issued Notice 2024-55, guidance on when there is an exception from the ten percent penalty tax for early withdrawals from retirement savings plans. The guidance focuses on emergency personal expenses and victims of domestic abuse.

Notice 2024-55 defines what constitutes an emergency personal expense distribution, including what is an unforeseeable or immediate financial need. It makes clear that most defined contribution plans (e.g., 401(k)s, 403(b)s, 457s) are eligible to allow penalty-free emergency personal expense distributions and distributions to victims of domestic abuse. Also in the Notice is a description of the limitations (both as to dollar amount and as to frequency) of penalty-free emergency personal expense and domestic abuse victim distributions. The Notice also makes clear that a person taking an emergency personal expense distribution, or a domestic abuse victim distribution may repay them. Also included in the Notice is affirmation that allowing these kinds of distributions is optional—a plan does not have to permit them.

Prospects: Further guidance is anticipated. The IRS said it plans more guidance on the ten percent early withdrawal penalty tax, and specifically asked for comments on the rules to impose on repayments of penalty-free early withdrawals.

NAIFA Staff Contact: Jayne Fitzgerald – Director – Government Relations, at jfitzgerald@naifa.org.