By: Lyndsey Barnett and Mikayla Howard*
The next installment of our updates on SECURE 2.0 is on another new in-service withdrawal option. SECURE 2.0 allows plan sponsors of defined contribution plans to amend their plans to allow plan participants who are victims of domestic abuse to make penalty-free early withdrawals from their retirement plans, beginning on or after January 1, 2024. The inclusion of such a provision is intended to give plan participants sufficient funds to escape an abusive situation and is exempt from the 10% early distribution penalty. According to the National Coalition Against Domestic Violence, more than 10 million adults in the United States experience domestic violence a year.
Plan participants who self-certify as a victim of domestic abuse may make an eligible distribution within a one-year period beginning on any date on which the individual is a victim of abuse by a spouse or domestic partner. The eligible distribution amount a plan participant may withdraw is the lesser of $10,000 or 50% of the value of the plan participant’s vested balance. This amount will be adjusted for inflation starting in 2025. Amounts withdrawn may be paid back into the plan within a three-year period, beginning on the day following the distribution. If the amount is repaid within that three-year period, the income tax will be refunded on the repaid money.
Under this section, domestic abuse is recognized as physical, psychological, sexual, emotional or economic abuse, as well as any efforts aimed at controlling, isolating, humiliating, or intimidating the employee or undermining the employee’s ability to reason independently. The penalty-free early withdrawal would also apply to abuse of the employee’s child(ren) or another family member within the household.
If you have any questions about this new optional in-service withdrawal right or about SECURE 2.0 generally, please reach out to any attorney on our Employee Benefits team.
