Participants in Emergency Situations No Longer Penalized for Accessing Retirement Funds

Participants can access retirement funds without incurring an early withdrawal penalty for certain emergency expenses.

How is SECURE 2.0 relevant to you?

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Inflation, higher interest rates and consumer debt create the potential for financial instability for many Americans as does the occurrence of an expected financial emergency. According to Corebridge Financials’ 2022 survey on Emergency Fund Needs and the American Worker, 74% of Americans are concerned about the effect an unexpected expense will have on their future, with 44% saying they are very concerned, numbers that are even higher for younger workers.

79% of respondents had at least one emergency expense of $1,000 or more in the past three years.
32% of respondents paid their rent or mortgage late.
44% of respondents did not make a needed home repair.
28% of respondents did not go to the doctor or send their child to a doctor.

Enter SECURE 2.0 Act of 2022

On December 29, 2022, retirement legislation called the SECURE 2.0 Act was signed into law as part of the year-end omnibus spending package. SECURE 2.0 aims to improve retirement outcomes by increasing access to retirement plans, growing and preserving savings, and helping Americans manage competing financial priorities so they can achieve long-term financial security. Among the provisions of SECURE 2.0 is section 115, which allows for early penalty-free withdrawals from tax-preferred retirement accounts, such as a 403(b), for certain emergency expenses.

Moments of crisis often short-circuit retirement plans

Conventional wisdom tells us that retirement dollars should be used for retirement. In fact, premature distributions taken before the age of 59½ (with few exceptions) typically incur a 10% penalty—in addition to paying income tax on the withdrawal. Premature distributions can significantly shrink a nest egg because the capital in the retirement account, and any potential growth, will likely be reduced. Despite this reality, participants in crises are often faced with immediate financial needs that challenge long-term financial goals, such as saving for retirement.

Having access to emergency funds could incent better retirement savings

Corbridge's survey asked workers if having access to a limited amount of retirement funds for an emergency would incent them to save more, and most said “yes.” Seventy-four percent of workers already contributing said they would save more and 73% of eligible non-contributors said they would begin.

Retirement plan assets can provide short-term relief for personal and family emergencies

Often considered a last resort, some individuals turn to their retirement savings—when all other sources of liquidity dry up. With the implementation of SECURE 2.0, participants who are younger than 59 ½ are no longer faced with incurring a 10% early withdrawal penalty for taking a small distribution to fund emergency situations.

Effective for employer-sponsored and individual retirement plan years beginning in 2024, SECURE 2.0 allows individuals in employer-sponsored and individual retirement plans to withdraw $1,000 to cover the costs of personal or family emergencies.

Individuals can self-certify that they are experiencing an unforeseeable and immediate financial need to avoid the 10% early withdrawal penalty.
These distributions are limited to one per calendar year.
No other emergency distributions can be taken in the following three years—unless the original distribution is repaid, or the aggregate elective deferrals and employee contributions equal the amount distributed.

While prematurely withdrawing retirement funds is rarely ideal, it helps to know that participants will no longer be penalized for doing so in moments of crisis.

Corebridge Financial: Moving financial futures forward.

As these SECURE 2.0 provisions become effective, plan sponsors will have more flexibility in helping employees achieve personal and financial wellness. For more information about these and other SECURE 2.0 provisions, reach out to your Corebridge representative and visit our online hub. This new online resource breaks down and simplifies relevant provisions of SECURE 2.0. We will continue to update the hub with more relevant and timely content—so please visit often.

Visit the SECURE 2.0 website

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