H.R. 329 — Expanding Penalty Free Withdrawal Act

This section establishes a new exception to the 10% additional tax on early distributions from qualified retirement plans (i.e., distributions before age 59½) for long-term unemployment distributions to individuals who have received unemployment compensation for 26 consecutive weeks (or the maximum period available under applicable state law) due to separation from employment. Such penalty-free distributions, not to exceed the lesser of $50,000 (reduced by prior such distributions during the preceding year from all plans) or the greater of $10,000 or one-half the aggregate fair market value of the individual's qualified retirement plans and nonforfeitable defined contribution plan balances, may be taken during the taxable year such unemployment compensation is received or the succeeding taxable year, are subject to rules similar to existing exceptions for distributions after reemployment and for self-employed individuals, and do not include amounts used for health insurance premiums; applies to distributions after December 31, 2024.