michel@inuxa.UUCP (Alan Michel) (08/21/86)
I was disturbed by the following article from August's Money Magazine, pages 40-41. (Ecerpts Copied from Money Magazine without permission) ( On 401Ks -) Both the House and Senate bills would impose a brand new 15% penalty on hardship withdrawals. And the only hardship cash you could get your hands on is the money you contributed yourself. The account's earnings and your employer's matching contributions would become off limits. The senate, but not the House, would carve out an exemption from the 15% penalty for so-called unforeseen hardships... ( on savings plans, such as AT&T BSSP) The proposed rules are even more involved for company savings plans to which you contribute earnings that you have already paid taxes on. Both the House and Senate plans would allow you to continue to withdraw the cash without restrictions like those for hardship. But they would also impose new fines. Under the Senate bill, any withdrawal of earnings on the account or matching contributions would become subject to a 10% penalty, plus taxes. In addition, you would no longer be able to pull out only the money you contributed. Instead, a portion of every withdrawal would be considered income subject to taxes and penalty. The part hit by those charges would correlate to the percentage of your account's value that is attributable to matching contributions and earnings. The House would impose a higher 15% penalty on withdrawals of what would be counted as matching contributions and earnings. And worse, you would have to take out all the money that would be subject to the fine before you could get access to the amounts that you contributed. (end of excerpt) I guess what they are trying to say, is that they encourage savings, but charge a penalty on any attempt to spend what you have saved in a company savings plan. I usually associate the word PENALTY with punishment for something that I did wrong. I strongly resent the word Penalty as used by the house and senate. Why don't they just admit they are creating a new tax (15%+your bracket rate) on savings, rather than make us feel like criminals just because we may want/need to spend what we have saved. Anyone who is involved in a company sponsored 401K or savings plan should write and call your representative about this. It is one thing to pay your fair share of taxes on income, it is another to be made to feel that somehow you are at fault or violating some rule, just because our representatives don't have the SPINE to call a new tax a tax. I wonder how many members of congress are even aware of all of the provisions of the tax bill they are considering? How many of them have even read it and understand it, cover to cover? If anyone can explain any reason for there being a penalty for withdrawing money from a savings plan, let me know. Sounds like the investment banking lobbyists got their way on this one. They probably wanted to make it completely illegal to withdraw funds from savings plans but didn't have enough money ^h^h^h^h^h^h influence to convince congress, so settled for this compromise :-).
spp@ucbvax.BERKELEY.EDU (Stephen P Pope) (08/23/86)
If you've got money in a 401k, and are thinking of needing it other than for retirement... better pull it out pronto! BTW, does anyone know if the penalty for premature IRA withdrawals is still 10%, or is it also going up to 15%? Also, under current law, you can make a premature IRA withdrawal without claiming hardship -- is there any change here? steve