SECURE Act 2,0 with over 60 provisions mostly all related to retirement plans, was enacted December 29, 2022 as part of the Consolidated Appropriations Act, 2023 (P.L. 117-238). I maintain a table of the provisions, summary from the Senate Finance Committee of each provision, effective date, and any guidance from the IRS.

SEC. 115 of the SECURE Act is called “Withdrawals for Certain Emergency Expenses.” It is well-intended to allow individuals to withdraw up to $1,000 from their eligible retirement account every three years without the 10% additional tax of IRC §72(t), if the funds are for distributions used for certain emergency expenses, to meet “unforeseeable or immediate financial needs relating to necessary personal or family emergency expenses.” SEC. 115 is on pages 838-839 of P.L. 117-238.

IRC §72(t)(2)(I) covering this additional tax exception is 504 words long and in addition to defining emergency expenses, also provides:

The individual may only make one distribution per year, and it may not exceed the lesser of $1,000 or “an amount equal to the excess of “(I) the individual’s total nonforfeitable accrued benefit under the plan (the individual’s total interest in the plan in the case of an individual retirement plan), determined as of the date of each such distribution, over ‘‘(II) $1,000.”
The plan administrator may rely on employee’s written certification that the exception is met.
The IRS can issue regulations where the employee statement doesn’t apply if the administrator “has actual knowledge” contrary to the certification, and procedures to address cases of employee misrepresentation.
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Over the years, I have heard individuals and tax professionals raise various questions on the operation of the American Opportunity Tax Credit (AOTC at IRC 25A). This is the credit that for the past many years provides up to a $2,500 credit for each of the first four years of higher education at a college or university.  It started in the early 1990s as the Hope Scholarship credit for a lower amount and only the first two years of college.

There are numerous other tax breaks for higher education including an exclusion for scholarships, a limited above-the-line deduction for student loan interest, the Lifetime Learning Credit, an exclusion for interest on education savings bonds, 529 accounts, and more.

Some of the issues I have heard for the AOTC include:

• Do years at a community college count as part of the four years? I believe they do, but what if the student isn’t, at least at first, pursuing a degree?
• What are all of the expenses that qualify?
• What if the 1098-T received (and required to claim the credit) is incorrect in terms of the year or amount?
• Why does it only cover college or university programs rather than also trade schools and similar?

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I received information from the National Academies on their new report, Reducing Intergenerational Poverty, Sept 2023. It defines “intergenerational poverty,” provides demographics of this poverty, describes education and health issues associated with continual poverty, and makes recommendations.

The introduction reminds us of the relevance of this topic to us all (page 1):

“Capable and responsible adults are the foundation of any well-functioning and prosperous society. Yet low-income families struggle to offer their children the same advantages and necessities that better-off families can offer. As a result, throughout their childhoods children living in families with low incomes face an array of challenges that place them at much higher risk of experiencing poverty in adulthood as compared with other children.”

“The costs of perpetuating this cycle of economic disadvantage fall not only on low-income individuals and families themselves, but also on society as a whole. Poverty reduces overall economic output and places increased burdens on the educational, criminal justice, and health care systems. Understanding the causes of intergenerational poverty and implementing programs and policies to reduce it would yield a high payoff for children and for the entire nation.”

One of the recommendations is to increase and expand the Earned Income Tax Credit (EITC). Per the researchers: “The strongest direct evidence on the likely intergenerational effects for children is found for programs that increase both family income and parental employment during childhood and adolescence.” [page 133]
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