Hardship Distribution Changes

The SECURE Act now allows penalty-free withdrawals to cover expenses related to the birth or adoption of a child. The SECURE Act 2.0 also contained many provisions that expanded taxpayers' ability to access retirement funds without penalty. One new provision will allow taxpayers to withdraw up to $2,500 each year to cover the costs of long-term care insurance without triggering the 10 percent early withdrawal penalty. Beginning in 2024, plan participants will be entitled to take penalty-free withdrawals if the participant certifies that they have been a victim of domestic violence by a spouse or domestic partner within the one-year period prior to the withdrawal. Taxpayers who have been certified by a physician as being terminally ill are also now permitted to take penalty-free withdrawals.

We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about expanding the hardship distribution rules to allow for penalty-free distributions for different reasons.

Below is a summary of the debate that ensued between the two professors.