As we embark on a new year, it’s beneficial to stay informed of the latest developments in financial legislation. Among the notable changes is Secure Act 2, which brings some significant amendments to financial preparedness in 2024. These updates augment existing provisions that let retirement plan participants withdraw funds from their accounts for unforeseen emergencies. The changes focus on emergency withdrawals, early distributions for hardships, and the introduction of emergency savings accounts at work. 

Emergency Withdrawals: Responding to Unforeseen Challenges  

The Secure Act 2 introduces a noteworthy provision for emergency retirement account withdrawal— which is designed to offer financial relief during unexpected crises like medical emergencies or natural disasters; this change enables individuals to access their retirement savings without incurring customary penalties. Life happens, and sometimes we need to access our rainy-day funds early! 

Current rules allow retirement savers to pull money from their 401(k)s and traditional individual retirement accounts before retirement to meet an “immediate and heavy” financial need. The withdrawal may be subject to income tax, and those under age 59½ typically owe a 10% tax penalty.  

Commencing in 2024, you have the option to make an annual withdrawal of $1,000 for personal or family emergency expenses without incurring the usual 10% penalty. The process involves a self-certification where you affirm that the funds are necessary for an emergency. 

While the opportunity for emergency withdrawals is welcome, individuals need to understand the specific qualifying events and the potential tax implications. Collaborating with financial advisors ensures responsible decision-making, aligning with immediate needs and long-term financial goals.  

Early Distributions for Hardships: A Safety Net for Victims of Domestic Abuse  

Retirement plans allow hardship withdrawals for immediate and heavy financial needs. This means that they are exempt from early-withdrawal penalties. But not every immediate and heavy need is allowed by the IRS. Legislation in recent years has expanded the list of allowed hardships, for example, to federally declared disasters, terminal illness, and more. In 2024, another need is being recognized: domestic abuse. 

In 2024, there is a provision allowing individuals to make penalty-free early withdrawals from their retirement accounts in domestic abuse. The withdrawal amount is limited to the lesser of $10,000 (adjusted for inflation) or 50% of the employee’s vested account value in the plan. This progressive measure not only addresses the urgent financial needs of survivors but also recognizes the importance of fostering economic independence and recovery for those navigating the aftermath of domestic abuse.  

Emergency Savings Accounts at Work: Fostering Financial Resilience  

Recognizing the importance of financial preparedness, Secure Act 2 encourages the establishment of emergency savings accounts in the workplace. These accounts are called pension-linked emergency savings accounts (PLESAs), and they empower employees to proactively set aside funds for unexpected expenses, creating a culture of financial resilience.  

Contributions are made by employees on an after-tax basis (aka Roth contributions), with a capped maximum balance of $2,500, and withdrawals for qualified emergency expenses remain tax-free, providing employees with a valuable financial safety net.  

The Secure Act 2 changes for 2024 mark a significant ongoing shift in retirement planning, emphasizing adaptability and financial preparedness. Stay informed and seek professional advice to understand how SECURE 2.0 changes apply to your specific situation. At Financial Fitness Group, we aim to educate people about important legislation that helps to provide a secure financial future.