Expanding Penalty Free Withdrawal Act

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Latest Action

Jan 9, 2025

Referred to the House Committee on Ways and Means.

Summaries (1)

Introduced in House - Jan 9, 2025 00

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.

Actions (3)

Referred to the House Committee on Ways and Means.

Type: IntroReferral | Source: House floor actions | Code: H11100

Jan 9, 2025

Introduced in House

Type: IntroReferral | Source: Library of Congress | Code: Intro-H

Jan 9, 2025

Introduced in House

Type: IntroReferral | Source: Library of Congress | Code: 1000

Jan 9, 2025

Subjects (6)

Employee benefits and pensions Income tax deferral Income tax exclusion Income tax rates Taxation (Policy Area) Unemployment

Cosponsors (3)

Rep. Olszewski, Johnny [D-MD-2]

(D-MD)
Feb 5, 2025

Rep. Cherfilus-McCormick, Sheila [D-FL-20]

(D-FL)
Jan 9, 2025

Del. Norton, Eleanor Holmes [D-DC]

(D-DC)
Jan 9, 2025

Text Versions (1)

Introduced in House

Jan 9, 2025

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Full Bill Text

Length: 3,378 characters Version: Introduced in House Version Date: Jan 9, 2025 Last Updated: Nov 14, 2025 6:26 AM

[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.

This Act may be cited as the ``Expanding Penalty Free Withdrawal
Act''.

SEC. 2.

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.

(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.

(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.
<all>

[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.
 <all>

View original source ↗

119-hr329