Senators propose penalty-free emergency 401(k) taps

Once-a-year withdrawals from retirement plans or IRAs would have to be paid back before additional borrowing could occur.

A bipartisan bill introduced last week in the Senate would allow participants in qualified workplace savings accounts and individual retirement accounts to withdraw funds penalty-free for emergencies under certain conditions.

The bill, sponsored by Sens. James Lankford, R-Okla., and Michael Bennet, D-Colo., both members of the Senate Finance Committee, would permit one emergency distribution per calendar year.

The distribution would be limited to vested amounts over $1,000, with an annual maximum withdrawal of $1,000. Individuals who took a distribution would have to repay the withdrawn amount before an additional emergency distribution from the same plan is allowed.

“Our commonsense bill provides Americans the flexibility to save for retirement now, knowing they have access to some of their money for an emergency,” Lankford said in a release.

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