Withdrawing from an IRA account before the age of 59.5 usually means an additional 10 percent tax. The SECURE 2.0 Act added new exceptions: an emergency personal expense up to $1,000 per year and up to $10,000 for victims of domestic abuse. A separate exception: up to $22,000 after a natural disaster.
The rule is known to anyone saving for retirement in the US: money withdrawn from an IRA before age 59.5 is subject, in addition to ordinary income tax, to an additional penalty tax of 10 percent. Less known is another fact: the list of exceptions to this penalty has grown. In guides circulating in the Polish-American press, it is sometimes presented as if it had been closed for years, whereas the SECURE 2.0 Act added new items to it, applicable to distributions made after December 31, 2023.
How the early withdrawal penalty works
The IRS calls distributions before age 59.5 “early distributions.” An additional 10 percent is added to the ordinary income tax unless the taxpayer’s situation fits one of the exceptions listed in the regulations. Watch out for SIMPLE IRA accounts: for withdrawals within the first two years of participating in the plan, the penalty increases to 25 percent.
Classic exceptions work as before. The penalty will not be paid, among others, by a permanently disabled person, a beneficiary after the account owner’s death, a taxpayer covering medical expenses from an IRA in the part exceeding 7.5 percent of adjusted gross income (AGI), a student paying for college, a first-time home buyer (up to $10,000), or a parent after the birth or adoption of a child (up to $5,000 per child).
First new feature: emergency personal expense, up to $1,000 per year
The biggest practical change is the so-called emergency personal expense distribution, introduced by section 115 of the SECURE 2.0 Act. Once per calendar year, you can withdraw money from an IRA or employer-sponsored retirement plan (such as a 401(k)) for an emergency personal or family expense without the 10 percent penalty. Limit: $1,000, and the withdrawal cannot reduce the account balance below one thousand dollars. The withdrawn money may be repaid to the account within three years, starting from the day following the receipt of the distribution; details are regulated by IRS Notice 2024-55.
Second new feature: up to $10,000 for victims of domestic abuse
Section 314 of the same act protects victims of abuse by a spouse or partner. A person in such a situation can withdraw penalty-free up to $10,000 or half of the account balance, if lower than that amount. Here too, a three-year window for returning the money to the account applies. The exception applies to distributions made after December 31, 2023.
Third new feature: up to $22,000 after a natural disaster
Separate rules apply to disaster victims. A taxpayer who has suffered an economic loss as a result of a federally declared natural disaster in their place of residence (hurricane, flood, fire) can withdraw up to $22,000 without the 10 percent penalty. This is an important loophole, for example, for the Polish community in Florida, which is regularly hit by hurricanes.
What to remember before you reach for this money
First: the exception removes only the penalty, it does not remove income tax. The withdrawn amount is still added to the income for a given year. Second: if the financial institution does not mark the exception in box 7 of Form 1099-R, it must be independently reported on Form 5329 during the annual tax filing. Third: every early withdrawal means a smaller pension in the future, so it should be a last resort, not a first impulse.
The full table of exceptions is published by the IRS at irs.gov. We wrote about the general rules for withdrawals from IRA accounts in the article When can you make an early penalty-free withdrawal from an IRA account?.
Tax settlements and retirement planning are best discussed with a professional who knows both countries: Polish accountants and financial advisors can be found in the Polish Pages directory.
This article is for informational purposes and does not constitute tax or financial advice. Decisions regarding withdrawals from retirement accounts should be consulted with a licensed tax advisor.
