Expanding Penalty Free Withdrawal Act
Expanding Penalty Free Withdrawal Act
Plain Language Summary
# Expanding Penalty Free Withdrawal Act - Summary **What It Would Do** This bill would allow unemployed workers to withdraw money early from their retirement accounts (like 401(k)s or IRAs) without facing the usual 10% penalty tax. Currently, withdrawing retirement funds before age 59½ triggers this extra penalty. Under this bill, people who receive unemployment benefits for at least 26 consecutive weeks could access their retirement savings penalty-free during the year they're receiving unemployment or the following year, giving them a financial cushion during job loss. **Who It Affects and Key Provisions** The bill primarily affects unemployed workers who have retirement savings they might want to tap during extended joblessness.
There's a catch: if someone gets rehired and stays employed for at least 60 days, the 10% penalty would apply again to any future early distributions. The bill appears to include limits on how much can be withdrawn (the summary text cuts off), suggesting it won't allow completely unlimited access to retirement funds. **Current Status** HR 329 is currently in committee and has not yet been voted on by Congress, meaning it's still in the early stages of the legislative process with no guarantee it will advance for a full vote.
CRS Official Summary
Expanding Penalty Free Withdrawal ActThis bill allows an individual who is unemployed for a certain period of time to take early distributions from a qualified retirement plan without paying an additional tax on such distributions, subject to limitations.Under current law, a 10% additional tax is imposed on early distributions from a qualified retirement plan unless an exception applies. This bill expands the list of exceptions to include distributions from a qualified retirement plan made (1) to an individual who is unemployed and receives federal or state unemployment compensation for 26 consecutive weeks (or the maximum number of weeks allowed under state law) and (2) in the same tax year that the unemployment compensation is paid or the following tax year. However, under the bill, the 10% additional tax applies to distributions from a qualified retirement plan made after an individual is employed for at least 60 days following a period of unemployment.The bill limits the amount that may be distributed to an unemployed individual from a qualified retirement plan free from the 10% additional tax to the lesser of (1) $50,000 in distributions from all of an individual’s qualified plans over a one-year period, or (2) the greater of $10,000 or half the fair market value of an individual’s qualified retirement plans and the nonforfeitable portion of an individual's defined contribution plans.
Latest Action
Referred to the House Committee on Ways and Means.