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Don’t Touch That Dial! Adding Penalty-Free 401(k) Withdrawal Features under SECURE 2.0

May 02, 2023 (3 min read)

For plan years starting on or after January 1, 2024, 401(k) plans can permit participants to access up to $1,000 of their account balance without penalty, in the event of an unforeseeable or immediate financial need that relates to necessary personal or family emergency expenses. SECURE 2.0 Act (Pub. L. No. 117-328, Div. T),  Section 115 (adding I.R.C. § 72(t)(2)(I)). Participants need only self-certify their need for the emergency distribution. No hardship certification is required or needs to be administered.  Also effective in 2024, plans can permit non-highly compensated employee-participants to contribute up to $2,500 on a Roth basis to an emergency savings account under the plan. SECURE 2.0 Act (Pub. L. No. 117-328, Div. T), Section 115 (adding I.R.C. §§ 72(t)(2)(J), 402A(e), 404(c)(6). These  SECURE 2.0 Act changes recognize that 401(k) savings may be the only or primary savings vehicle for employees and that sometimes access to a fairly small amount of plan money shouldn’t be an administrative production. 

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    Understand that emergency withdrawals, as introduced by the SECURE 2.0 Act, are (effective for distributions on and after January 1, 2024) limited annually to the lesser of $1,000 or that portion of the individual's vested plan benefit that exceeds $1,000, and limited to one every three years (unless the amount is repaid to the plan).

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