The Enhancing Emergency and Retirement Savings Act Would Allow for Penalty-Free “emergency Distribution” option from Solo 401k Plans and Self-Directed IRAs

On June 1, 2021 a proposed bill (The Enhancing Emergency and Retirement Savings Act) was introduced by by Senator James Lankford (R-OK) and Michael Bennet (D-CO). The proposed bill would provide a penalty-free “emergency distribution” option from employer-sponsored retirement accounts (e.g., solo 401k) and IRAs (e.g.., self-directed IRA).

The main purpose of the bill is to encourage more participation in 401k plans including solo 401k plans since generally distributions cannot be made from retirement accounts until the participant meets a triggering event such as age 59 1/2, no longer working for the employer or, in the case of the self-employed, no longer being self-employed.

“So many Oklahomans live paycheck to paycheck. They want to start saving for retirement, but they can’t take the risk of losing access to their money in case of an emergency,” Lankford stated in introducing his legislation. “Our commonsense bill provides Americans the flexibility to save for retirement now, knowing they have access to some of their money for an emergency and be able to pay that money back into their retirement plan.”

“Millions of families are trapped in this cycle of economic insecurity—one emergency away from everything falling apart. This bipartisan legislation will help give workers more flexibility to foot the bill for an unexpected emergency expense,”  Bennet stated, noting that nearly 4 in 10 Americans cannot afford a $400 emergency expense. 

Here are some key items found in the proposed bill:

  • The participant could distribute funds from the solo 401k for a personal emergency without satisfying a typical solo 401k distribution exception
  • Just one emergency distribution would be allowed each year. 
  • The maximum emergency distribution would be $1,000 per participant. 
  • The amount distributed on account of an emergency distribution would need to be returned back to the same solo 401k plan before an additional emergency distribution from that same solo 401k plan is allowed.

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About Mark Nolan

Each day I speak with energetic entrepreneurs looking to take the plunge into a new venture and small business owners eager to take control of their retirement savings. I am passionate about helping others find their financial independence. Having worked for over 20 years with some of the top retirement account custodian and insurance companies I have a deep and extensive knowledge of the complexities of self-directed 401ks and IRAs as well as retirement plan regulations. Learn more about Mark Nolan and My Solo 401k Financial >>

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