Retirement plan funds are designed for retirement, but Congress continues to make it easier for employees to pull out those funds while still working. The SECURE 2.0 law adds several new in-service withdrawals that can be made from 401(k), 403(b) and 457 plans. The law also relaxes some of the rules for traditional hardship withdrawals from these plans.
New SECURE 2.0 In-Service Withdrawals
The new in-service withdrawal options are for: federally-declared disaster expenses; terminal illness; victims of domestic abuse; and emergency expenses. (In-service withdrawals to pay long-term care premiums become available in 2026.) Note that plans are not required to offer withdrawals for any of these reasons. But if offered, these new SECURE 2.0 withdrawals can be made before age 59 ½ —without paying the 10% early distribution penalty.
SECURE 2.0 Changes to Traditional Hardship Withdrawals
Traditional hardship withdrawals from 401(k) and 403(b) plans have always been required to satisfy three conditions:
457(b) plans are subject to a stricter standard than the 401(k)/403(b) standard: the expense must have resulted from an “unforeseeable emergency.”
Starting in 2023, the SECURE 2.0 law permitted 401(k) and 403(b) plans to allow employees to self-certify that all three of these conditions have been met. 457(b) plans can also allow self-certification to demonstrate an unforeseeable emergency. Although self-certification is optional, not mandatory, most plans will welcome it as a way of taking a big administrative burden off their plate.
SECURE 2.0 also gave 403(b) participants more access to their accounts for hardship withdrawals. Before 2024, 401(k) hardship withdrawals could be made from all plan accounts, but 403(b) withdrawals could only come from employee salary deferrals (without earnings). In addition, 403(b) participants were required to obtain plan loans before receiving a hardship distribution, but 401(k) participants were not. Effective for 2024, SECURE 2.0 makes the 403(b) hardship withdrawal rules the same as the 401(k) rules.
Taxes and Penalties
Keep in mind that in-service withdrawals of pre-tax funds, whether traditional hardship withdrawals or SECURE 2.0 withdrawals, are taxable. And, while SECURE 2.0 withdrawals are never subject to the 10% penalty, traditional hardship withdrawals may be subject to penalty if made before age 59 ½.
Specializing in private wealth management, we provide education, guidance, and strategies to help you achieve a tax-efficient retirement income.
Specializing in private wealth management, we provide education, guidance, and strategies to help you achieve a tax-efficient retirement income.
Investment advisory services offered through Donato Wealth Management, PLLC, dba Empower Wealth Management and Empower Wealth & Tax (“Empower Wealth Management” or “EWM”),
an SEC registered investment adviser that only conducts business in jurisdictions where it is properly registered, or is excluded or exempted from registration requirements. Registration as an investment adviser is not an endorsement of the firm by securities regulators and does not mean the adviser has achieved a specific level of skill or ability. The firm is not engaged in the practice of law or accounting.
The information presented is believed to be current. It should not be viewed as personalized investment advice. All expressions of opinion reflect the judgment of the authors on the date of publication and may change in response to market conditions. You should consult with a professional adviser before implementing any strategies discussed. Content should not be viewed as an offer to buy or sell any of the securities mentioned, or as legal or tax advice. You should always consult an attorney or tax professional regarding your specific legal or tax situation. Personal investment advice can only be rendered after the engagement of EWM, execution of required documentation, and receipt of required disclosures. All investment and insurance strategies have the potential for profit or loss. Asset allocation and diversification will not necessarily improve an investor’s returns and cannot eliminate the risk of investment losses. Past performance is no guarantee of future results. For more information, please go to https://adviserinfo.sec.gov and search by our firm name or by our CRD #305031.
Insurance products and tax services are offered through Senior Tax and Insurance Advisors, PLLC, dba Empower Wealth Group (“Empower Wealth Group” or “EWG”). Any comments regarding safe and secure investments and guaranteed income streams refer only to fixed insurance products. They do not in any way refer to investment advisory products offered through EWM. Rates and guarantees provided by insurance products and annuities are subject to the financial strength of the issuing insurance company; not guaranteed by any bank or the FDIC. EWG is not affiliated with or endorsed by the U.S. Government, Social Security Administration, nor the federal Medicare program. You may be contacted by a licensed insurance agent. Calling the number above will direct you to a licensed insurance agent. EWG may not offer every plan available in your area. Any information provided is limited to plans available in your area. Please contact Medicare.gov or 1-800-MEDICARE.
EWM and EWG are both affiliated companies of Empower Wealth, LLC (“Empower”). Investment adviser representatives of EWM may have a financial incentive to recommend tax and insurance products and/or services offered through EWG which presents a conflict of interest. This conflict is addressed by EWM’s adoption of its Code of Ethics, which requires that all EWM’s Associated Persons place the interest of clients ahead of their own. Clients of EWM are also free to choose their own tax and/or insurance professionals and are under no obligation to utilize the services offered through any related entities or persons associated with Empower.
Strategic Partners listed on this page are not employees of EWM and are not affiliated through common ownership.
We do not offer every plan available in your area. Any information we provide is limited to those plans we do offer in your area. Please contact Medicare.gov or 1-800-MEDICARE to get information on all of your options.
© Empower Wealth Management All Rights Reserved.
