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Exploring Penalty-Free Distribution Provisions Under SECURE 2.0

The SECURE 2.0 Act of 2022 has made it easier for participants to access their retirement savings in times of need without having to incur the 10% early withdrawal penalty, in certain situations. Plan sponsors now have the ability to allow participants who are going through or have experienced a natural disaster, terminal illness, domestic abuse situation or an immediate financial need to take a penalty free distribution from their employer-sponsored retirement plan.

A Potential Alternative to a Hardship Withdrawal

These new in-service withdrawals differ from hardship withdrawals that typically come with a high cost. When a participant takes a hardship withdrawal, it must fall into one of the seven qualifying events. If the participant is under 59½, they may be subject to the 10% early withdrawal penalty. Another drawback is that hardship funds cannot be repaid but a participant does have to pay taxes on the amount withdrawn.

SECURE 2.0 has now made the process of accessing retirement funds to help during challenging times easier, acknowledging that participants may be going through financially devastating events beyond their control. Rather than have them take an expensive hardship withdrawal, they can now access their funds in an easier and less expensive way. When a participant requests a hardship distribution they can simply “self-certify” that they are experiencing a hardship and have no other savings to address it. Providing proof of hardship is then up to the participant in the event of any future audit.

Four Options for Penalty-Free Withdrawals

The table below summarizes four optional in-service withdrawal provisions that a participant may access for emergencies.

Optional Distribution Provision


Effective Date

Federally Declared Disasters

Allows a participant to take up to $22,000 within 180 days after a federally declared disaster from their retirement plan or individual retirement account (IRA). This distribution will not be subject to the 10% early distribution penalty. To be eligible, a participant’s “principal place of abode” must have been in the disaster area.

Available now

Withdrawals for Terminal Illness

A terminally ill participant may withdraw their retirement savings without being subject to the 10% early distribution tax penalty. A physician needs to certify that a participant has an illness or experienced an injury that can reasonably be expected to result in death within 84 months after certification.



Emergency Expense Withdrawal

Allows a participant to take one distribution per year, which is the lesser of $1,000 or the participant’s nonforfeitable benefit reduced by $1,000. The 10% early withdrawal penalty does not apply for these emergency expenses which are immediate or unforeseeable. Important note: No additional emergency distributions are allowed during the 3-year repayment period without fully repaying the distribution.  

Available in 2024

Distribution to a Domestic Abuse Victim

Allows a penalty-free distribution from a retirement plan for those who are victims of domestic abuse equal to the lesser of $10,000 or 50% of the vested account balance.

Available in 2024

Repayment of Distributions

Participants who elect to take one of these distributions listed in the table above have the option to repay all or part of their distribution within a 3-year period. Recordkeepers are currently working through these new distribution options to update their systems to ensure the repayment process runs smoothly.

Next Steps

All four penalty-free distribution provisions will become available January 1st 2024. Two of the four distribution provisions can be adopted now. But as a reminder, plan amendments will need to be made for all SECURE 2.0 provisions by the end of the first plan year beginning on or after January 1, 2025 (2027 for collectively bargained and governmental plans).

Even though the deadline is still over a year away, it may be a good idea to review and

evaluate whether any of these optional distribution provisions may be beneficial for your plan. This way plan sponsors and recordkeepers can start developing custom communications so that participants are aware of these upcoming distribution options. Your Spectrum representative is available to help you answer any questions you may have about any of these optional distribution provisions.

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ERISA Workplace Retirement Plan Limits

The federal government annually publishes updated qualified retirement plan limits, which impact the contributions, benefit accruals, and compliance of ERISA covered qualified retirement plans. The below tables summarize the most significant changes in recent history.


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