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

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

During withdrawal from your IRA or retirement funds before the age of 59 ½ years, you must pay a 10% penalty in addition to the regular income tax and tax-deferred accounts. Here are some new escape routes to avoid the early withdrawal penalty.

For those who want to use their retirement funds early, the SECURE Act 2.0 comes with some exceptions. Many of them are with effect from 2024. Go ahead and take a look at the exceptions:

New Emergency Personal Expenses Escape route.

This begins in 2024. This escape is for taxpayers who want money for the purpose of satisfying unforeseeable expenses or to meet immediate financial needs like family emergency expenses. A written certificate submitted to the plan administrator makes you eligible for the withdrawal. You can withdraw only one emergency personal expense per year up to $1,000 or until you repay the distribution or after three years since the previous distribution or regular deferrals and contributions since emergency distribution totally, as much as the prior emergency distribution.

Domestic Abuse Escape route

From 2024, those victims of domestic abuse can withdraw from the retirement account penalty-free up to $10,000 or 50% of their vested balance, whichever is less. The withdrawal should be made one year from the date of abuse. A self-certification to the IRA custodians can qualify you for this exception.

Terminal Illness Escape route

If you have a terminal illness, immediately access penalty-free retirement account distribution without any ceiling. The criteria are; the illness that may result in death within seven years. A certification from the doctor is to be provided to the administration. The illness can include cancer, with a low survival rate. However, there is no proper explanation for the low survival rate.

Long Term care Escape route.
This starts in 2026. You can avail yourself penalty-free from the retirement account to repay the long-term care insurance. The withdrawal can be 10% of the vested balance or $2,500, whichever is less.

Discovery Recover Escape route.
If you are a victim of a natural disaster like a flood, hurricane or fire, you can withdraw some amount from retirement funds without penalty. All federally declared disaster falls under this category. It is retroactive to disasters falling on or after January 26, 2021. You must live in the said place of disaster and take your distribution within 180 days. The maximum withdrawal amount is $22,000.

Public safety workers age 50 exceptions escape route.
The public safety worker is given an exception of 10% penalty under certain circumstances. These include private sector firefighters, corrections officers of the local and the state and forensic security employees if they separate from services at the age of 50 or above. It is also available for public safety workers who are less than 50 years but having more than 25 years of services.

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