Hardship 401(k) Withdrawal Penalties Waived in U.S. Relief Bill

Retirement account holders affected by the new coronavirus wouldn’t owe 10% penalties for early emergency withdrawals and could take up to $100,000 out of their 401(k)s under a proposed U.S. stimulus package.

Those are among a handful of tax changes for qualified retirement accounts included in the sprawling spending package negotiated by senators and White House staff, according to summaries circulated by the Senate Finance Committee and the Health, Education, Labor and Pensions Committee.

Most of the provisions are temporary in nature. Many of the proposals were part of an insurance lobby-led campaign that blanketed Capitol Hill last week.

The retirement tax changes include:

• Early withdrawal penalty: Non-retiree age individuals financially impacted by the new coronavirus outbreak are exempt from paying the 10% penalty on emergency withdrawals from retirement accounts
• 401(k) withdrawal rules: Individuals financially impacted by Covid-19 can withdraw up to $100,000 in emergency funds from their retirement accounts through Dec. 31. Those funds can be repaid into the same retirement accounts for up to three years.
• 401(k) loans: Individuals financially impacted by Covid-19 can loan themselves up to $100,000 from their retirement accounts. Loan repayments, which can be spread out over five years, are delayed up to one year.
• Required minimum distributions: Retirees are exempt from having to begin drawing down qualified retirement plans during 2020.
• Pension payments: Single employers can delay making pension plan funding contributions due this year until January 2021.