An influential congressman is considering a measure that would let people hit by Hurricanes Harvey and Irma dip into retirement funds to pay for emergency and recovery costs.
Rep. Kevin Brady, a Republican whose district near Houston was flooded by Harvey last month, said he might propose legislation that would let hurricane victims take money from their 401(k) plans without paying the standard penalty. Brady is chairman of the Ways and Means Committee, the House’s chief tax-writing panel.
A waiver would require Congressional approval, and Brady has not released a bill or any details. His only comment came in an exchange last week with reporters in which he said that a hurricane relief bill “will include tax provisions, some of which will help people access their retirement funds without penalty for rebuilding activities.”
The idea is drawing a mixed response. Supporters say it would help people struggling with a crisis. Critics say other mechanisms such as disaster aid are better suited to help hurricane victims.
Brady’s idea involves suspending or reducing the 10-percent penalty that 401(k) holders now pay when they make a “hardship withdrawal” from their account before they reach age 59 ½. The penalty is imposed on the amount of money withdrawn and aims to deter people from tapping into accounts that provide tax advantages to encourage retirement savings.
Withdrawals from 401(k) accounts are subject to federal income tax, and Brady gave no indication he was considering lifting that tax.
“It’s important to recognize this is a crisis,” said Diann Howland, vice president for legislative affairs of the American Retirement Council, which supports Brady’s idea. “These people [affected by the hurricanes] need to be able to take action to support themselves and their families.”
Congress waived the 10-percent penalty after Hurricane Katrina in 2005, Howland said, adding that lawmakers need to act quickly. “The sooner they do it, the better,” Howland said. The council’s members include large U.S. employers and employer-service organizations.
Ways and Means spokeswoman Emily Schillinger said the committee is “working quickly to help people as soon as possible.”
Roughly 54 million employees in the U.S. participated in 401(k) plans in 2015, according to the Investment Company Institute. The nation’s 401(k) plans hold an estimated $5 trillion in assets, which represents nearly 20 percent of the $26.1 trillion in U.S. retirement assets, the institute said. About 64 percent of the assets are in mutual funds.