The Secure Act now allows penalty-free withdrawals to cover expenses related to the birth or adoption of a child. The Secure 2.0 Act also contained many provisions that expanded taxpayers' ability to access retirement funds without penalty.
One new provision allows taxpayers to withdraw up to $2,500 each year to cover the costs of long-term care insurance without triggering a 10% early withdrawal penalty, starting in 2025.
Beginning in 2024, plan participants are entitled to take penalty-free withdrawals if they certify that they have been a victim of domestic violence by a spouse or domestic partner within the one-year period before the withdrawal.
Taxpayers who have been certified by a physician as being terminally ill are also now permitted to take penalty-free withdrawals.
We asked two professors and authors of ALM's Tax Facts with opposing political viewpoints to share their opinions about expanding the hardship distribution rules to allow for penalty-free distributions for different reasons.
Below is a summary of the debate that ensued between the two professors.
Their Votes:
Bloink
Byrnes
Their Reasons:
Bloink: One of the primary reasons that Americans fail to take advantage of tax-preferred retirement savings options is the fear of needing the funds prior to retirement and incurring penalties on top of ordinary income tax rates for hardship withdrawals.
Expanding the limited list of reasons why a participant can access retirement funds without penalty is key to encouraging increased retirement savings.
