The SECURE Act contains a number of provisions aimed at expanding Americans’ access to their retirement accounts. One such new viable option adds an exception under which 401(k) participants and IRA owners can withdraw up to $5,000 for expenses related to a qualified birth or adoption. Under the arrangement, the 10% early withdrawal penalty is waived, but applicable income taxes (including capital gains taxes) still apply at the individual’s ordinary income rate.
The new provision is effective for distributions made after December 31, 2019. However, in order to qualify for the exception, the distribution must be made during the one-year period beginning on the date on which the living child is born (stillborn children don’t qualify) or the adoption (adoptees must be under 18) is finalized, which means it can’t be used for costs incurred leading up to a planned birth or adoption.
New parents can opt to repay the withdrawal amount; it is not considered a loan and would be treated as a rollover.
Schneider Downs Wealth Management Advisors, LP (SDWMA) is a registered investment adviser with the U.S. Securities and Exchange Commission (SEC). SDWMA provides fee-based investment management services and financial planning services, along with fee-based retirement advisory and consulting services. Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice
