Sens. Lankford, Bennet Propose Allowing $1,000 Penalty-Free 401k Withdrawal Each Year
Senators James Lankford (R-Okla.) and Michael Bennet (D-Colo.) recently introduced the Enhancing Emergency and Retirement Savings Act of 2021, bipartisan legislation that would allow individuals to withdraw $1,000 from their 401k accounts each year without facing the usual penalty associated with such withdrawals.
The bill “provides Americans the flexibility to save for retirement now, knowing they have access to some of their money for an emergency,” Lankford said. “Adding that flexibility will help encourage workers, who might not otherwise feel comfortable participating in their personal or companies’ retirement savings program, to put money in those accounts with a little more peace of mind.”
“Nearly four in ten Americans can’t afford a $400 emergency expense. Millions of families are trapped in this cycle of economic insecurity⎯one emergency away from everything falling apart,” said Bennet. “This bipartisan legislation will help give workers more flexibility to foot the bill for an unexpected emergency expense.”
According to Market Watch, empirical evidence shows that employees are more likely to contribute to a retirement plan if it offers some type of loan, rather than locking up their money.
The bill would provide a penalty-free “emergency distribution” from retirement accounts and IRAs sponsored by employers. One emergency distribution would be allowed per year, which would be limited to vested amounts over $1,000, with a yearly maximum withdrawal of $1,000.
The legislation would also require that the individual re-distribute the withdrawn funds back to the plan before another emergency distribution is taken from the same plan. This will provide flexibility for employees while ensuring they continue to save for retirement.
The bill is supported by the following groups: Nationwide Retirement Solutions, American Retirement Association, American Benefits Council, The ERISA Industry Committee, State Street Global Advisors, and LPL Financial.