Forgo 401k Early-Withdrawal Penalty
Calls for fiscal relief involving 401ks are growing louder, with The Wall Street Journal joining the American Retirement Association and Empower Retirement in arguing for penalty-free—and in some cases tax-free—withdrawals to combat the coronavirus crisis.
“As the coronavirus threatens to stall the U.S. economy, a relatively easy countermeasure is to hit the emergency 401k button: Congress should allow people to take a certain sum, say $10,000, from their retirement accounts without facing penalties or taxes,” the Journal argued in a prominent editorial on Thursday.
Noting the recent passage of the SECURE Act, which until recently dominated industry attention and news, the paper wrote, “Early withdrawals generally face automatic tax withholding. Plus, there’s a 10% penalty, with narrow exceptions. Congress created a new exception in December when it passed the Secure Act: Up to $5,000 can be taken out, penalty-free, ‘in case of birth of child or adoption.’ In hindsight, lawmakers should have added a provision ‘in case of global coronavirus pandemic.’”
“It provides an option for people who need the cash, without blanketing everyone …Further, each dollar pulled from a retirement account would cost the Treasury only a fraction of that in forgone revenue, for a multiplier effect.”
The record-keeping giant lobbied to allow:
- Retirement plan participants to withdraw retirement savings early without a 10 percent tax.
- Qualified disaster distributions in income over three years.
- Withdrawals up to $100,000 from their qualified retirement plans with the income tax for the withdrawal spread out over three years.
Earlier in the weak, the American Retirement Association announced it “has been working with key lawmakers to include legislation that would provide tax relief to individuals and employers that suffer a sustained economic loss from the COVID-19 outbreak.”
Congress, the Department of Labor and the IRS have granted regulatory and filing relief to retirement plan sponsors and participants affected by natural disasters in the past—most recently Hurricanes Irma, Harvey and Matthew.