How SECURE 2.0 Impacts Company Plan In-Service Withdrawals
Retirement plans like 401(k), 403(b), and 457(b) accounts are meant to help employees build long-term savings. But in some cases, financial emergencies or personal challenges require access to those funds before retirement.
To meet that need, SECURE 2.0, signed into law in 2022, significantly changes how employees can access retirement savings while still employed. These changes introduce new in-service withdrawal options and simplify traditional hardship withdrawal rules.
Here’s a breakdown of the new rules and how they may affect both employers and employees in 2024 and beyond.
What Are In-Service Withdrawals?
An in-service withdrawal allows an employee to withdraw money from a workplace retirement plan while still working for the employer.
Prior to SECURE 2.0, in-service withdrawals were limited by strict criteria—usually limited to:
- Hardship withdrawals (for severe financial need)
- Loans (with required repayment)
- Certain age-based or post-separation distributions
Now, SECURE 2.0 introduces additional categories that expand access without requiring separation from service or reaching age 59½.
New In-Service Withdrawal Options Under SECURE 2.0
SECURE 2.0 introduces several new penalty-free withdrawal categories, effective as early as 2023. These options are available for:
- Federally declared disasters
- Terminal illness
- Domestic abuse victims
- Emergency personal expenses
- Long-term care insurance premiums (available in 2026)
Each of these allows for early access to retirement funds without triggering the 10% early distribution penalty—a significant benefit for employees under age 59½.
Important note: Employers are not required to offer these withdrawals. Plan sponsors can choose whether or not to include them in their plan documents.
Explanation of Each New Withdrawal Option
1. Federally Declared Disaster Relief
Participants can withdraw funds penalty-free if they live in a region affected by a federally declared disaster. This category aims to provide rapid financial relief for impacted individuals.
2. Terminal Illness Withdrawals
If an employee is diagnosed with a terminal illness, they can withdraw funds from their 401(k), 403(b), or 457(b) without penalty, regardless of age.
3. Domestic Abuse Survivors
Participants who experience domestic abuse can access retirement funds early to escape unsafe situations or secure housing, without the 10% penalty.
4. Emergency Personal Expenses
This new category allows a once-per-year withdrawal of up to $1,000 for personal emergencies. Unlike hardship withdrawals, documentation is not required. If the funds aren’t repaid within three years, no additional emergency withdrawals can be made during that period.
5. Long-Term Care Withdrawals (Coming in 2026)
Beginning in 2026, in-service withdrawals will be allowed to pay for long-term care insurance premiums, offering a retirement-aligned use for plan assets.
Changes to Traditional Hardship Withdrawal Rules
Hardship withdrawals are a long-standing in-service option, but the rules have been restrictive and often required documentation and employer approval.
Under SECURE 2.0, the process becomes simpler and more consistent across plan types.
1. Self-Certification Now Allowed
Employees may now self-certify that:
- They have an immediate and heavy financial need
- The amount requested does not exceed that need
- They lack other liquid resources to meet the expense
This applies to:
- 401(k) and 403(b) plans for general hardship withdrawals
- 457(b) plans for “unforeseeable emergencies”
Self-certification is optional, not mandatory—but most plan sponsors are expected to allow it, since it reduces administrative overhead.
2. Updated Access for 403(b) Participants
Historically, 403(b) plan hardship withdrawals:
- Could only be made from salary deferrals (excluding earnings)
- Required participants to take a plan loan first
As of 2024, 403(b) plans now follow the same rules as 401(k) plans. This means:
- Withdrawals can come from all account sources (including earnings)
- Loans are no longer required before requesting a hardship withdrawal
This levels the playing field for nonprofit and public-sector employees who have long faced more restrictive access rules than their private-sector counterparts.
What Employers Should Know
Employers offering retirement plans should:
- Review plan documents to decide which SECURE 2.0 options to adopt
- Communicate updates to plan participants clearly
- Update systems to allow self-certification for hardship requests (if adopted)
- Work with plan administrators to ensure compliance and documentation
Allowing more flexible in-service withdrawals can support employee financial wellness but may also increase the number of requests.
FAQ: SECURE 2.0 In-Service Withdrawals
What is an in-service withdrawal?
An in-service withdrawal allows an employee to take money from a retirement plan like a 401(k), 403(b), or 457(b) while still employed.
What new in-service withdrawal options does SECURE 2.0 allow?
SECURE 2.0 adds penalty-free withdrawals for federally declared disasters, terminal illness, domestic abuse, emergency expenses, and long-term care premiums (2026).
Are these new withdrawals subject to taxes?
Yes. All in-service withdrawals from pre-tax accounts are taxable as income, even if they are exempt from the 10% early withdrawal penalty.
Can employees self-certify for hardship withdrawals?
Yes. As of 2023, plans may allow employees to self-certify that they meet the criteria for a hardship or emergency withdrawal.
Do employers have to offer these new withdrawal options?
No. SECURE 2.0 allows—but does not require—employers to offer the new in-service withdrawal types.
Takeaways for Employees and Plan Sponsors
The SECURE 2.0 Act makes it easier for employees to access retirement funds before retirement, but with greater access comes greater responsibility. Employees must still consider taxes, long-term savings goals, and potential consequences of withdrawing early.
Employers should assess which in-service options support their workforce best, balancing flexibility with administrative capacity.
To get personalized guidance on your company retirement plan or to speak with one of our licensed advisors.
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Source: Ian Berger, JD
IRA Analyst
Ed Slott and Company, LLC
Christian Cordoba, founder of California Retirement Advisors, has been a member of Ed Slott's Master Elite IRA Advisor Group since 2007.