Domestic violence. It seems you hear it everywhere these days. But you know what you never hear? You never hear from those who are stuck in it. The outside world has no idea what you endure. A friend of mine lost her life shortly after I met her. She never even mentioned she had a boyfriend, no less how he treated her. It’s an impossible situation, but Section 314 of the Secure Act 2.0 has opened a new opportunity for anyone trapped in the mess we call domestic violence.
Your Retirement Funds Are AvailableSection 314 allows you to take up to $10,000 from your retirement fund to recover from domestic violence. You are limited to half your fund if that is less than $10,000. This is for both 401k plans at work and for Traditional IRAs that you saved yourself. You have one year from any instance of domestic violence to make the withdrawal. There is no need to provide proof to your employer, HR, or the retirement plan people. You only need to ‘self-certify’, or provide a statement that the withdrawal is for domestic violence. You are not required to give any details. (Don’t give any details to your employer.) You do not need to personally be the victim. Everything here applies the same if violence or abuse was committed toward your child or another member of your household. Do I Pay Taxes? Penalties?There are no early withdraw penalties for distributions for domestic violence. However, it is taxable income. The money was never taxed before, so when you take it out, you pay the taxes. All your income for the year is added together and taxed, including any retirement distributions. This raises your income for the year and could affect your eligibility for Earned Income Credit, Child Tax Credit, Medicaid, EBT, WIC, and the price of your marketplace health insurance. Be sure to check with a tax professional before you make a large withdrawal and go over its total tax impact. You Can Pay It BackIf you have the means, you can pay it back to yourself. There are other new reasons that you can ‘borrow’ your own retirement <cite baby cite emergency> but this one is treated differently. Withhold taxes from your distribution (20% federal and 5% state) and you have to report the whole distribution as income for the year you make the withdrawal. However, you can pay yourself back over the next three years and take the tax deduction. If you took the money from a Traditional IRA, all you need to do is pay it back into the IRA. You can deduct what you pay back as a tax-deferred contribution again. You can pay back all of it or any portion over the next three years. If you took the money from a 401k plan at work, you cannot ‘pay it back’ to your employer. It is not a loan. You ‘pay it back’ to yourself in a Traditional IRA. Usually if you have a 401k, you cannot make contributions to a Traditional IRA, too. However, if you are repaying an emergency distribution, you can do both. Keep good records of the payback and be sure it is reported on your taxes correctly. Trouble? contact Domestic Violence Support | National Domestic Violence Hotline |
