New IRS Secure 2.0 Notice Affects Terminally Ill Clients
The Internal Revenue Service has published a batch of Secure 2.0 Act guidance that could have a big effect on employer-sponsored retirement plans and some effect on individual clients under age 59½ who are terminally ill.
The IRS released IRS Notice 2024-2 to answer questions about sections in the Setting Every Community Up for Retirement Enhancement 2.0 Act concerning topics such as automatic enrollment in employer-sponsored retirement plans and use of small, immediate financial incentives to encourage employees to contribute to employer plans.
Other answers concern Secure 2.0 Section 326, which waives the 10% penalty on early retirement plan withdrawals for individuals with a terminal illness.
Tom Morgan, the notice author, confirmed that section 326 penalty relief applies to holders of individual retirement accounts and individual retirement annuities as well as participants in employer plans.
What it means: Clients who are terminally ill and might be subject to the 10% early retirement savings withdrawal penalty will have to include early IRA and individual retirement annuity distributions in taxable income but will not have to pay the penalty.
The new notice may also signal how the IRS will address other Secure 2.0 questions. Morgan noted that the IRS is continuing to analyze the law and expects to issue further guidance, including regulations.
The early withdrawal penalty: Federal law normally encourages retirement savers to keep cash in retirement savings arrangements by imposing the 10% penalty on withdrawals taken before the savers turn 59½.
