Denise Appleby, APA, AKA, CISP, CRC, CRPS, CRSP
SECURE Act 2.0 gives domestic abuse victims a break from the 10% additional tax on early distributions.
Generally, IRAs and employer plans distributions are subject to a 10% additional tax if taken before the participant attains age 59-½. However, the 10% early distribution penalty is waived if the distribution qualifies for an exception. SECURE Act 2.0 adds a new exception for victims of domestic abuse; however, limitations apply.
The New Domestic Abuse Distributions
One of the new provisions of SECURE Act 2.0, signed into law on December 29, 2022, as part of the Consolidated Appropriations Act, 2023, is the new exception to the 10% early distribution penalty for domestic abuse distributions.
A domestic abuse distribution is made to a domestic abuse victim during the 1-year period beginning on any date on which the individual is a victim of domestic abuse by a spouse or domestic partner.
This provision is effective for distributions made after 2023.
Domestic Abuse Defined
For this provision, domestic abuse means physical, psychological, sexual, emotional, or economic abuse, including efforts to control, isolate,
humiliate or intimidate the victim, or undermine the victim’s ability to reason independently, including by abuse of the victim’s child or another family member living in the household.
Qualifying Plans
A domestic abuse distribution may be made from an applicable eligible retirement plan, which is either of the following:
- an IRA (account or annuity)
- a qualified plan other than a defined benefit pension plan
- a 403(a)-annuity plan
- a governmental 457(b) eligible deferred compensation plan
- a 403(b) plan
If the distribution is made from a designated Roth account such as a Roth 401(k), an applicable retirement plan is another designated Roth account and a Roth IRA. Designated Roth accounts and Roth IRAs are the only accounts that may receive a rollover from a designated Roth account.
If the distribution is made from an employer plan, the participant may self-certify that they qualify for a domestic abuse distribution. Certification is not required for an IRA, as the IRA owner is the administrator.
Dollar Limit
A domestic abuse distribution for a participant is capped at the lesser of:
a) $10,000 or
b)50% of the participant’s vested account balance.
The $10,000 limit is adjusted for inflation as of 2025.
Withholding and Repayment Rules
A domestic abuse distribution, or any portion of it, may be re-contributed (repaid)to an applicable eligible retirement plan, other than a defined benefit plan, within three years. However, despite the eligibility to re-contribute the amount, a domestic abuse distribution is not treated as an eligible rollover distribution for purposes of the direct rollover rules. Therefore, it would not be processed as a direct rollover to an eligible retirement plan and would instead be paid to the participant. Neither is it subject to the mandatory 20% withholding that applies to taxable amounts that are eligible for rollover but is instead distributed to the participant or the 402(f) notice requirements for rollover-eligible distributions from employer plans.
Awaiting Guidance on Tax Reporting
A payor (plan trustee or IRA custodian) is required to indicate whether a distribution is exempt from the 10% early distribution penalty by inputting the applicable exception code in Box 7 of Form 1099-R. However, if the payor does not know that a distribution qualified for an exception, they would input a non-exception code. The participant’s tax preparer would file IRS Form 5329 to claim the exception.
Domestic abuse distributions are expected to fall into the non-exception codes category.
Follow Me For Updates
The IRS is expected to provide guidance on plan amendments, tax reporting, and other administrative functions for domestic abuse distribution and other SECURE Act 2.0 provisions.
Follow me on social media @ApplebyIRA or LinkedIn at deniseappleby/ for updates.
