With The passage of the SECURE 2.0 Act in 2022, in-service (i.e., still self-employed) distributions from solo 401k plans prior to age 59 1/2 have been somewhat relaxed as follows which means the 10% early distribution tax penalty would be waived.
- Distributions of up to $22,000 to cover expenses for disaster expenses that have been federally declared for the self-employed individual. This new rule is effective January 26, 2021 and after so it is retroactive.
- Distributions for terminal illness of the self-employed individual if made once self-employment income ceases and before age 55 and is effective for 2023 and later years.
- If the self-employed individual is a victim of domestic abuse, he or she can make up to $10,000 (indexed for inflation) in distributions. This new rule is effective in 2024 and later years.
- The self-employed individual can make an emergency expense distribution up to $1,000 starting in 2024 and future years.
- Penalty free distributions if made after separation from service (so no longer self-employed in the case of solo 401k participants) in the year the self-employed business owner attains age 55 or older.
