Rules based money

Dave Kutcher

by Dave Kutcher

Those of you who have heard me speak or have met with us about your retirement plans have most likely heard me refer to IRA type accounts as “ruled based money”.

Knowing the rules with assets such as IRA’s is important, or you may run into situations where you subject your funds to unnecessary penalties.

Keeping up with the rules is essential and so today we want to bring to light some new rules that impact your ability to access your IRA type monies prior to age 59 ½ … an age we have all learned is the earliest we can access our IRA without penalty.

As is the case with most rules, there are exceptions. The most notable exception to the age 59 ½ rule falls under Section 72(t) of the Internal Revenue Code. Section 72(t) now includes provisions coming from the SECURE 2.0 Act to include two new exceptions to the 10% penalty for early withdrawals.

Beginning January 2024, SECURE 2.0 ACT now provides penalty free access for additional personal circumstances; those falling into one of two new specific categories labeled Emergency Personal Expense Distributions (EPED) and Domestic Abuse Victims Distributions (DAVD).

If you are seeking more specific information than what is provided here today, please refer to IRS notice 2024-55.

Internal Revenue Code Section 72(t)(2)(I) now includes Section 115 of the SECURE 2.0 Act providing an exception to the 10% penalty rule for Emergency Personal Expense Distribution (EPED). Here you will find the specifics for a distribution to meet unforeseeable or immediate financial needs relating to necessary personal or family emergency expenses. Factors that will be considered include medical expenses, accidents, or loss of property due to casualty, home foreclosure or eviction from primary residence, auto repairs, burial and funeral expenses.

Employees will rely on plan administrators to assess the employee’s claim for emergency funds. If a plan administrator/employer doesn’t permit the EPED, the employee may treat a permissible distribution as an EPED.

Funds accessed via this new rule are treated similarly to other rules such as qualified birth /adoption distributions, where a recipient of such distributions may repay the funds within 3 years, and no further EPED’s are allowed during the next three calendar years unless it is fully paid back.

Internal Revenue Code Section 72(t)(2)(K) now includes Section 314 of the SECURE 2.0 Act providing an exception to the 10% penalty rule for Domestic Abuse Victim Distribution (DAVD).Domestic Abuse is physical, psychological, sexual, emotional or economic abuse including efforts to control, humiliate, isolate or intimidate a victim or to undermine the victim’s ability to reason independently … including using means such as abuse of a victim‘s child or other family member living in the household. Qualifying distributions fall within a one-year period beginning on any date when an individual is a victim of domestic abuse by a spouse or domestic partner. Section 314 allows for the lesser of $10,000 or 50% of a vested account.

With rules-based money, it pays to know the rules…

My name is David A. Kutcher, a retired Marine Corp Captain. My business partner in the lower 48 is Richard C. Scott, CLU, LUTCF. For nearly 40 years we have been helping folks with their personal retirement decisions. We encourage you to make an appointment and get ahead of your concerns as early as is possible. You can catch us on the radio every Saturday morning, “Retirement in the Last Frontier”, 8:30-9:30 on AM 650, Keni Radio and on Tuesday mornings, KFQD News Talk Radio AM 750 and FM 103.7. Frontier Retirement, 10928 Eagle River Road; Eagle River, AK 99577, (907) 795-7452.