Expanding Penalty Free Withdrawal Act

This Act may be cited as the Expanding Penalty Free Withdrawal Act.

Section 72(t)(2) of the Internal Revenue Code of 1986 is amended by adding at the end the following new subparagraph:

Distributions to an individual after separation from employment—

(I) if such individual has received unemployment compensation for 26 consecutive weeks under any Federal or State unemployment compensation law by reason of such separation (or, if less, for the maximum period for which unemployment compensation is available under State law applicable to the individual), and

(II) if such distributions are made during any taxable year during which such unemployment compensation is paid or the succeeding taxable year.

Rules similar to the rules of clauses (ii) and (iii) of subparagraph (D) shall apply for purposes of this subparagraph.

Clause (i) shall not apply to any distribution to the extent that such distribution exceeds the lesser of—

(I) $50,000, reduced by the aggregate amount of distributions which are described in clause (i) from all plans of the individual during the 1-year period ending on the day before the date on which such distribution was made, or

(II) the greater of $10,000 or one-half of the aggregate fair market value (at the time of the distribution) of the individual’s qualified retirement plans (as defined in section 4974(c)) and the nonforfeitable portion the individual’s defined contribution plans.

Distributions shall not be taken into account under this subparagraph if such distributions are described in subparagraph (D).

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The amendments made by this section shall apply to distributions made after December 31, 2024.