(OurNationNews.com) Ostensibly in a effort to become more “customer-centric”, the U.S. Internal Revenue Service, or IRS, has introduced a new provision that allows people to withdraw up to $1,000 from their retirement funds, without penalties, for uses designated as “personal emergencies.”
The new initiative coincides with other fairly recent improvements within the IRS system, which include better telephone support as well as the launch of a free software program / app that helps people file their tax returns. Under the new rule, individuals can cite emergency expenses such as auto repairs, medical care, funeral services, as some acceptable reasons for the emergency withdrawal. Savers are entitled to a qualified withdrawal once every year. They must pay the amount back within a period of three years, or else pay the tax penalty on the funds and be disqualified from making another penalty-free emergency withdrawal in the future. Savers also cannot make withdrawals that would make their account go below $1,000. The new initiative is exclusive to employer plans only.
Previously, individuals who wanted to take money out of their retirement funds needed to pay a hefty 10% tax on the amount they withdrew if they were 59 and a half years old or under. The penalty fee could possibly be retained if the withdrawer provided proof that the funds would be used for a “qualified hardship” such as medical emergencies and the like. The funds taken out could also not be paid back nor transferred into another retirement account.
Reports show that more Americans have been forced to unwillingly dip into their retirement accounts in recent years, due to the rising costs inflation has brought. According to investment company Fidelity Investments, in 2018, only 2.1% of its savers have dipped into their 401(K) accounts, as opposed to 6.9% last year. Financial experts say that mortgage payments and medical bills are often the most common reasons savers are pulling money out of their retirement accounts.
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