Tax Breaks for Working People

Recent changes (from SECURE 2.0 Act) add new exceptions for early 1099-R withdrawals, specifically for domestic abuse victims (after Dec. 31, 2023) and emergency personal expenses (after Dec. 31, 2023), allowing penalty-free distributions if requirements are met, with guidance in IRS Notice 2024-55  detailing these and clarifying that plans don't need immediate amendments, IRS website.

Here's a breakdown of key changes and existing exceptions:

• Domestic Abuse: Distributions to victims (from a spouse or partner) are exempt if certain conditions are met, IRS Publication 590-B.
• Emergency Personal Expenses: Distributions for specific unforeseen personal emergencies are also exempt, with rules detailed in IRS Notice 2024-55.
• Plan Flexibility: It's optional for plans to offer these new exceptions, and formal plan changes aren't required until at least the end of 2026, says this Journal of Accountancy article.

• Health: Unreimbursed medical expenses over a certain AGI percentage or health insurance premiums while unemployed.
• Disability/Death: Distributions due to total and permanent disability or the IRA owner's death.
• Substantially Equal Periodic Payments (SEPPs): A series of payments for your life or life expectancy, guided by IRS Notice 2022-6.
• Education/Home: Qualified higher education expenses or up to $10,000 for a first-time home purchase.
• Birth/Adoption: Up to $5,000 for qualified birth or adoption distributions.
• Other: IRS levy, separation from service after age 55 (or 50 for public safety), and reservist distributions.

• Your plan administrator sends Form 1099-R showing the distribution.
• Box 7 indicates the distribution code (e.g., Code 1 for early, no known exception; Code 2 for early, exception applies).
• You'll use Form 5329 to claim exceptions