IRS Notice 2024-55 and related news release IR-2024-170 provides guidance on exceptions to the 10 percent additional tax under section 72(t)(1) of the Internal Revenue Code (Code).
On Thursday, June 20, 2024, the IRS issued Notice 2024-55 and related news release IR-2024-170 providing guidance on exceptions to the 10 percent additional tax under section 72(t)(1) of the Internal Revenue Code (Code) for emergency personal expense distributions and domestic abuse victim distributions. The guidance provided in Notice 2024-55 relates to two new exceptions to the 10 percent additional tax that were brought about by the SECURE Act 2.0 of 2022, and effective for distributions beginning on or after January 1, 2024.
Overview
The notice contains guidance regarding definitions and rules for each exception, describes the limitations (both dollar amount and frequency) on receiving the payments, and outlines the repayment provisions.
Emergency personal expense distributions are distributions made from an eligible retirement plan (including an IRA, SEP, and SIMPLE IRA) to an individual for purposes of meeting unforeseeable or immediate financial needs relating to necessary personal or family emergency expenses.
Emergency personal expense distributions are subject to three limitations:
- One distribution per calendar year;
- Limited to $1,000 per distribution (not indexed for inflation); and
- Subject to rules that limit subsequent emergency personal expense distributions.
A domestic abuse victim distribution is a distribution made from an eligible retirement plan (including an IRA, SEP, and SIMPLE IRA) to an abuse victim if made during the one-year period beginning on the date which the individual is a victim of domestic abuse by a spouse or domestic partner. The notice clarifies that the aggregate amount that an individual may treat as a domestic abuse victim distribution cannot exceed the lesser of (1) $10,000 (indexed for inflation), or (2) 50% their IRA balance (vested accrued benefit if taken from an eligible employer plan).
When processing these distributions, financial organizations may rely on an IRA owner’s written certification that he or she is eligible to receive the payment. Distributions will be reported according to the IRA owner’s age on Form 1099-R using code 1 or 7.
Individuals may repay these distributions within a three-year period, starting the day after the date on which the distribution was received. Box 14a of the Form 5498 will report the amount of the repayment, and Box 14b will report the repayment code (EP for emergency personal expense distributions or DA for domestic abuse victim distributions). Refer to the Instructions for IRS Forms 1099-R and 5498 for detailed reporting instructions for these and other special repayments.
Additional regulations anticipated
The Treasury Department and IRS invite public comments on or before October 7, 2024, and anticipate issuing regulations on the 10% penalty as well as the exceptions addressed in Code section 72(t). The notice specifically requests comments related to the repayments of these distributions. No specific date or timeframe for these regulations was provided within the notice.
NOTE: At the time this article was written, $10,000 was the 2024 limit that was excluded from penalty for victims of domestic abuse. For 2025, that limit increased to $10,300.