New Exceptions to the 10% Additional Tax
Under the SECURE 2.0 Act, several exceptions have been added to the 10% early withdrawal penalty (IRC § 72(t)):
- Domestic abuse victim distributions: If you qualify under the rules, you may take a distribution without the 10% penalty. (irs.gov)
- Terminally ill individual distributions: Once certified by a physician, early withdrawals are exempt from the penalty. (irs.gov)
- Qualified disaster recovery distributions: Up to $22,000 if disaster rules apply, with specific timeframe requirements. (irs.gov)
Changes to Required Minimum Distributions (RMDs)
SECURE 2.0 also modified when RMDs must begin under § 401(a)(9):
- For those turning age 73 between January 1, 2023 and December 31, 2032, the RMD age is 73.
- For those reaching 74 after December 31, 2032, age 75 will apply. (irs.gov)
- These rules apply to IRAs, 401(k)s, 403(b)s, and similar plans.
Practical Strategies for Retirement Savers
- Review your beneficiary designations—required minimum distribution rules also affect surviving spouses or alternate beneficiaries.
- If considering early withdrawals (due to abuse or illness), document physician certification properly and track timing.
- For disaster recovery distributions, verify the incident period, qualified disaster area, and eligible loss. Timing is tight.
Examples
- Example 1: Jane, 72 in mid-2024, must begin RMD the later of April 1 following the year she turns 72, or after retirement, per previous rules vs. with new age thresholds under SECURE 2.0.
- Example 2: Sam is a victim of domestic abuse and wishes to withdraw from his 401(k) before retirement age—if he satisfies the statutory requirements, he avoids the 10% penalty.
Key Compliance Tips
- Speak with your plan administrator to ensure that they’re implementing age changes per SECURE 2.0.
- For eligible exceptions to penalty, keep rigorous documentation—medical certifications, proof of disaster declarations, etc.
- Account for RMDs in cash flow planning—higher age RMDs likely reduce required annual withdrawal amounts for several years.
Bottom line: Recent changes under SECURE 2.0 mean more flexibility for early distributions under specific conditions, along with delayed required withdrawals for many retirement savers. Use the exceptions wisely—and prepare early.