Not if a little-known provision buried deep within President
Barack Obama's proposed 2016 budget becomes law. The provision would allow
those who've received unemployment compensation for more than 26 weeks to
withdraw up to $50,000 per year from their IRAs and employer-sponsored
retirement plans. And while experts said the budget is unlikely to pass in its
current form, there appears to be bipartisan support for the exemptions.
Under the proposal, you would have to withdraw retirement
funds either in the year when you received unemployment compensation or the
following year. If you qualify, you can withdraw at least $10,000 from your
retirement accounts. If you have more than $10,000 in your retirement accounts,
you can withdraw half of your retirement plan balance up to $50,000
penalty-free.
How it would work
Here's how the exemption would work: If you have $30,000 in
your retirement accounts, you can only withdraw $15,000 from your nest egg
without paying the 10 percent penalty. You would need at least $100,000 in your
retirement accounts to receive the full $50,000 distribution without paying the
penalty.
But it will be hard to make up a huge withdrawal from your
retirement accounts. You can only contribute $5,500 (or $6,500 if you're 50 or
older) per year to an IRA. The contribution limit for 401(k)s is
$18,000 this year (or $24,000 if you're 50 or older). Not to mention the
potential earnings you might miss by taking out money from your retirement
funds.
Many taxpayers under financial hardship have fought the 10
percent early distribution penalty in court and failed to gain relief. But lawmakers don't want to be seen as adding
to the financial burden of the unemployed. That gives Levine hope that the
hardship exemption for retirement plans might gain bipartisan support from
Congress.
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