No I’m not talking about Iraq. Obama recently made some adjustments to his potential economic plan for America. Obama unveils new economic plan as poll lead builds.
One provision I found particularly interesting…the new plan,
“would permit families to withdraw up to 10,000 dollars from their retirement accounts penalty-free.”
Obama says “[w]e need to give people the breathing room they need to get back on their feet…”
It’s all just speculation at this point, so what do you think of this idea? Penalty-free permission to withdraw from your retirement accounts? This would obviously apply to every one’s 401k, 403b, and IRAs. Do you think it’s necessary? Would it have any effect on people’s ability to save for retirement? Would you like that kind of flexibility? Is there a down side?
Penalty-Free Early Retirement Withdrawal Already Exists
There are already a few exceptions that will allow you to do an early withdrawal without penalty. In fact, we withdrew from our IRA last year when we bought our first home.
Here are a few exceptions for early withdrawal of your retirement funds:
From a Qualified Retirement Plan (401k & 403b)
- You die
- You’re 55 or older and you retired or left your job
- You have medical expenses higher than 7.5% of AGI
- You’re ordered by divorce decree
From an IRA (to name just a few)
- You were permanently disabled
- You bought your first home
- You paid for college expenses
- You were unemployed and paid for health insurance
Why is There a Penalty?
Why was the provision built into the rules to begin with? Why is there even a penalty? I guess you’d think that the penalty is there to discourage moving money in and out of your retirement. The Government’s way of forcing a buy a hold strategy on your retirement savings.
So, let me know what you think. I know I threw a lot of questions at you, but there’s a lot to say here. Please share what you know in the comments below.