Penalty Relief for Those Using Their IRAs Early
As the unemployment rate stubbornly remains above 8% and individuals remain unemployed for long amounts of time, many people have no choice but to tap into their IRAs. Each time they do so, they face income tax and, if under age 59 1/2, a 10% early withdrawal penalty.
Many people tapping into their IRAs entered the 2008 crisis with solid financials; however, job loss and extended unemployment have created a situation in which many families are struggling to meet basic, fixed living costs such as food, gas and mortgage payments. Waiving the early withdrawal fee could provide some much needed relief.
As the number of people who have used their IRAs to get through periods of un- or underemployment increase, the New York State Society of Certified Public Accountants has sent a proposal to Congress to temporarily and retroactively waive the 10% early IRA withdrawal penalty for individuals facing economic hardship as a result of the Financial Crisis. You can read the proposal, written to New York Senator Chuck Schumer, here.
Although there are already many exceptions to the existing penalty law, including health insurance premiums for unemployed workers, first-time home purchases and tuition for college and graduate school, the proposal extends the list to include preventing foreclosure on a principal residence, long-term unemployment once benefits run out and paying federal, state and local tax liens.
Although breaking into an IRA should be a last resort- and the penalty was enacted to deter investors from using their IRAs early- many people are in dire straights right now. A penalty just exacerbates the financial strain many Americans are already feeling.
The proposal asks that Congress retroactively enact the bill from January 1, 2010 and set the expiry date at December 31, 2013.
Click here for information about IRA withdrawal penalties from the IRS.