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This bill would let some unemployed people take money out of their retirement accounts without paying the usual early-withdrawal penalty. To qualify, a person must have been out of work and received unemployment benefits for at least 26 straight weeks, or for the longest period their state allows if that is shorter. The penalty-free withdrawal could be made while the unemployment benefits are being paid or in the following tax year. The bill also sets limits on how much can be taken out and says the new rule would start for withdrawals made after December 31, 2024.
- The withdrawal would apply only after a person has separated from employment and met the unemployment-benefit time requirement.
- The amount allowed without a penalty would be limited to the smaller of: $50,000 minus any similar withdrawals made in the past year, or a value based on the person’s retirement savings, with a floor of $10,000.
- The bill says these rules would work alongside existing rules for people who return to work or are self-employed.
- If a withdrawal already qualifies under a separate rule for unemployed people paying health insurance premiums, it would not also count under this new rule.
Official Summaries
Expanding Penalty Free Withdrawal Act
This 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.
Current Full Text
[Congressional Bills 119th Congress]
[From the U.S. Government Publishing Office]
[H.R. 329 Introduced in House (IH)]
<DOC>
119th CONGRESS
1st Session
H. R. 329
To amend the Internal Revenue Code of 1986 to expand the availability
of penalty-free distributions to unemployed individuals from retirement
plans.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
January 9, 2025
Mrs. Watson Coleman (for herself, Mrs. Cherfilus-McCormick, and Ms.
Norton) introduced the following bill; which was referred to the
Committee on Ways and Means
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to expand the availability
of penalty-free distributions to unemployed individuals from retirement
plans.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Expanding Penalty Free Withdrawal
Act''.
SEC. 2. EXPANSION OF EXCEPTION FOR PENALTY ON EARLY DISTRIBUTIONS TO
UNEMPLOYED INDIVIDUALS FROM RETIREMENT PLANS.
(a) In General.--Section 72(t)(2) of the Internal Revenue Code of
1986 is amended by adding at the end the following new subparagraph:
``(N) Long-term unemployment distributions.--
``(i) In general.--Distributions to an
individual after separation from employment--
``(I) if such individual has
received unemployment compensation for
26 consecutive weeks under any Federal
or State unemployment compensation law
by reason of such separation (or, if
less, for the maximum period for which
unemployment compensation is available
under State law applicable to the
individual), and
``(II) if such distributions are
made during any taxable year during
which such unemployment compensation is
paid or the succeeding taxable year.
``(ii) Distributions after reemployment;
self-employed individuals.--Rules similar to
the rules of clauses (ii) and (iii) of
subparagraph (D) shall apply for purposes of
this subparagraph.
``(iii) Limitation.--Clause (i) shall not
apply to any distribution to the extent that
such distribution exceeds the lesser of--
``(I) $50,000, reduced by the
aggregate amount of distributions which
are described in clause (i) from all
plans of the individual during the 1-
year period ending on the day before
the date on which such distribution was
made, or
``(II) the greater of $10,000 or
one-half of the aggregate fair market
value (at the time of the distribution)
of the individual's qualified
retirement plans (as defined in section
4974(c)) and the nonforfeitable portion
the individual's defined contribution
plans.
``(iv) Coordination with distributions to
unemployed individuals for health insurance
premiums.--Distributions shall not be taken
into account under this subparagraph if such
distributions are described in subparagraph
(D).''.
(b) Effective Date.--The amendments made by this section shall
apply to distributions made after December 31, 2024.
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