Allow Penalty-free Hardship Withdrawals from Retirement Accounts in 2008 and 2009

Promise Broken President Obama has broken the following promise:

"Obama and Biden are calling for legislation that would allow withdrawals of 15% up to $10,000 from retirement accounts without penalty (although subject to the normal taxes). This would apply to withdrawals in 2008 (including retroactively) and 2009." — Agenda - The Economy


Other promises regarding our economy.


Updated: February 19, 2009

Penalty-free hardship withdrawals nowhere to be found

Obama proposed penalty-free withdrawals as part of an overall plan to address the economy. It was noted a few weeks ago (see previous update below) that penalty-free 401(k) withdrawals were not in the proposed economic stimulus bill, formally known as The American Recovery and Reinvestment Act of 2009. The measure didn't make it into the final version, either, which the president signed on Feb. 17, 2009.

After searching congressional databases we still can't find any legislation that's been introduced to make 401(k) withdrawals penalty-free. Congressional staffers have indicated there are no plans in the works for it to get any serious consideration any time soon.


Library of Congress, The American Recovery and Reinvestment Act of 2009, Feb. 17, 2009

Updated: January 28, 2009

Penalty-free 401k withdrawals not in stimulus

Obama proposed penalty-free withdrawals as part of an overall plan to address the economy. As of this writing, the measure is not in the stimulus bill, nor in any other legislation that we could find.

The rules for hardship withdrawals from 401(k) plans are complicated and can vary depending on your employer's policies and how close you are to retirement. But in general, you can withdraw money early if you have no other source of money and can document a specific hardship — medical bills, impending foreclosure, college expenses and other things. (See detailed guidelines from the IRS on hardship withdrawals .) The penalties are steep: The government taxes the money as regular income, and there's an additional 10 percent penalty in addition to that.

Besides that, the money won't earn compounded growth to build wealth, and during these economic times, early withdrawals lock in market losses that might turn around in time.

Obama proposed eliminating the penalty (but not the regular taxes) on hardship withdrawals, and making it retroactive to 2008. If passed, that could help people who will have to pay taxes on money they've already taken. But as we said, the measure is not in the stimulus bill.


Interview with Ed Ferrigno of the Profit Sharing/401K Council of America

Interview with Bob Williams of the Tax Policy Center

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