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Creates a tax exception allowing people who are designated victims of fraud to take money from most retirement accounts without paying the 10% early-distribution additional tax. To get the exception, an individual must apply to the Treasury, provide law enforcement or court documentation showing they were a victim of fraud, and receive a designation; the Treasury must issue guidance within 180 days and run a public awareness campaign. The change applies only to distributions from defined-contribution style plans (excluding defined benefit plans) made after enactment and incorporates rules for repayment similar to existing early-distribution exceptions.
The bill gives fraud victims faster, clearer access to penalty relief for early retirement withdrawals and a pathway to restore funds, while imposing administrative requirements, modest federal revenue costs, and risks that some victims may still be denied relief if documentation or guidance are strict or delayed.
Taxpayers who are victims of fraud can withdraw retirement funds without the 10% early-withdrawal penalty, making needed cash available immediately and reducing short-term tax costs for those harmed.
Taxpayers (including low-income individuals) will receive standardized guidance and a public awareness campaign on how to claim the waiver within 180 days, helping victims learn about and claim relief sooner and reducing filing errors and IRS processing problems.
Victims can use repayment/replacement rules to restore withdrawn retirement amounts, giving a pathway to replace funds and limiting long-term retirement harm for seniors and other affected savers.
Fraud victims must provide law-enforcement or court documentation and apply to the IRS, and missed guidance deadlines or administrative processing can delay relief, creating a significant paperwork burden and postponing access to funds.
Some victims — especially low-income individuals — could still be denied the waiver if the Secretary's designation is disputed or if guidance is unclear or narrowly written, leaving vulnerable people without relief.
Expanding the early-withdrawal penalty exception will reduce IRS penalty revenue and cause a small increase in federal revenue loss, which slightly shifts costs onto taxpayers generally.
Introduced March 14, 2025 by Haley Stevens · Last progress March 14, 2025