SECURE 2.0 adds a new exception for taking penalty-free withdrawals from retirement accounts. The tax code imposes a 10% penalty on the taxable amount of withdrawals from accounts such as 401(k) plans and IRAs received before age 59½. There are several exceptions to the penalty. The new law adds an exception for distributions used for emergency expenses, which are defined as unforeseeable or immediate financial needs related to personal or family emergency expenses. Only one distribution of up to $1,000 is permitted a year and a taxpayer has the option to repay the early distribution within three years. This will become effective for distributions made after Dec. 31, 2023.
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