One of the many changes found in the SECURE 2.0 Act deals with making repayable emergency distributions from qualified plans such as 401k plans including solo 401k plans, 403(b) plans, governmental 457(b) plans as well as from IRAs. This new rule is effective beginning with distributions made on January 01, 2024 and after.
Highlights of the Emergency Distributions Commencing January 1, 2024
- Not available until January 01, 2024
- It applies to qualified plans including solo 401k plans.
- Each solo 401k participant may distribute a maximum of $1,000 per year to pay for expenses related to an unforeseeable or immediate personal or family emergency. The solo 401k participant may self-certify their eligibility for this type of distribution.
- The 10% early distribution penalty does not apply.
- These distributions may be repaid to the solo 401k within 3 years.
QUESTION:
After taking the first $1,000 emergency distribution from my solo 401k, when can I take another emergency distribution?
ANSWER:
Hopefully the IRS provides more clarity but following is how the rules are currently promulgated:
The participant is required to wait one year before taking another $1,000 maximum emergency distribution under the SECURE 2.0 rule discussed above. Therefore, if you make the full $1,000 distribution from the solo 401k in 2024, you must wait until 2025 to process another distribution. See SEC. 115. WITHDRAWALS FOR CERTAIN EMERGENCY EXPENSES. Starts on page 2105 of 4155.
However, the rules go on to state you would need to wait at least 3 years before taking another emergency distribution unless one of the following applies:
Therefore, if you satisfy one of the above events, you can take another emergency distribution the following year. For example, if you make an emergency distribution in 2024, and your employee contributions for 2024 exceed the amount distributed, then you could make another emergency distribution from the solo 401k in 2025 (not in 2024 because of the one-distribution-per-calendar-year rule).
