Tax Planning

SECURE 2.0 Adds New Escapes from the 10% Early Withdrawal Penalty

by | Apr 24, 2023

In late 2022, Congress passed the SECURE 2.0 Act, which made several changes to tax-advantaged retirement plans. Many of the changes create new exceptions to the 10 percent penalty on early withdrawals from IRAs and other retirement accounts before age 59 1/2.

Starting in 2024, you will have more options than ever before to withdraw money from a retirement account without penalty. Unfortunately, most exceptions require experiencing something negative, such as a financial emergency, domestic abuse, a terminal illness, or a disaster.

It’s important to note that while these withdrawals will not be subject to the 10 percent early withdrawal penalty, you must pay regular income tax on withdrawals from tax-deferred accounts such as traditional IRAs and 401(k)s. Withdrawals from Roth IRAs held for five years are not subject to income tax.

In 2024, a new emergency personal expense withdrawal exception to the 10 percent penalty will allow you to withdraw up to $1,000 from your retirement accounts in case of almost any type of financial emergency. But you can only do so once every three years unless you pay back the money first.

Starting in 2024, taxpayers who suffer abuse from a spouse or domestic partner may withdraw up to $10,000 penalty-free. Domestic abuse is broadly defined to include physical, psychological, sexual, emotional, or economic abuse.

If you expect to die from a terminal illness within seven years, you can withdraw any amount from your retirement accounts penalty-free—immediately. A doctor must certify your terminal illness.

Starting in 2026, retirement account owners may take penalty-free annual distributions of up to $2,500 to help pay for long-term care insurance for themselves or their spouses.

You can withdraw up to $22,000 from your retirement accounts penalty-free if a federally declared disaster damages your primary residence. This provision is retroactive to January 26, 2021, and applies to all federally declared disasters.

Some of these exceptions can be combined. For example, you could take a penalty-free emergency personal expense distribution and domestic abuse distribution in the same year for a maximum of $11,000. If a federally declared disaster damages your home, you could add up to $22,000. But let’s hope you never experience any of these adverse situations.

If you want to discuss any of the new provisions mentioned above, please reach out to us.


The information contained in this post is for general use and educational purposes only.  However, we do offer specific services to our clients to help them implement the strategies mentioned above.  For specific information and to determine if these services may be a good fit for you, please select any of the services listed below. 

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