James, an HR director, called me with a serious question. “I have a few employees who I think have fallen on hard times. They haven’t told me what’s going on but they’re asking questions about what the penalties are for withdrawing money from their retirement plans, and they look pretty stressed out.”
“I’ve seen heard this question before,” I explained. “Fortunately, there’s some new legislation called SECURE 2.0 that includes some provisions designed to help people in times of personal crisis.”
“Tell me more,” said James.
“Under SECURE 2.0. A person may take out a hardship withdrawal for unforeseeable or immediate financial problems related to necessary personal or family emergency expenses. One withdrawal per year is allowed with a maximum distribution of $1,000. Employees can self-certify. Emergency withdrawals are exempt from the 10% early distribution penalties associated with DC plans and IRAs, and this will be effective for any distributions made after the end of 2023.” And if they repay the distribution within three years, they can get back all the taxes they paid to the IRS as well.
“That could help,” said James. “You don’t want to feel like you’re burning yourself when you have to pull money out of your retirement plan during hard times.”
“Exactly,” I agreed.” And there’s another withdrawal rule for domestic violence. This one also applies to distributions made after 2023. A participant may take out the lesser of $10,000 or 50% of their vested account balance. And they can self-certify that that event happened. There’s no 10% withdrawal penalty and if they repay the withdrawal within three years, they can get the taxes back, too. ”
“This is good stuff,” said James. “Hopefully I’ll be able to offer a little comfort to some of my teammates. Is there more?”
“Yes. There’s another withdrawal for qualified birth or adoption—QBAD. QBAD is also exempt from early withdrawal penalty, and again if it is repaid back within three years they get all the taxes back.”
“Amazing. Thank you,” said James. “As an HR pro, how would I ever learn about any of this stuff if I didn’t have…?”
“That’s kind of the point,” I explained. “Don’t feel bad. You have an accountant who stays on top of tax law, engineers who keep their eyes on what’s happening in technology, and a retirement plan professional who watches what’s going on there. Work with experts who know your name and pick up the phone so you can get back to work helping your employees!”
“Thanks, David. I think I’m going to be able to do just that!”
Your retirement plan might offer more benefits than you think. Ask the experts at CRS how to get the most from your existing plan or upgrade to one that makes sense for you.