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Commentary

Another Small Crack in the Retirement System

Congress looks for further ways to turn our retirement system to a general savings system.

Congress is on the verge of adding yet another way to take money penalty-free out of a retirement account. It’s not that this provision is particularly terrible or problematic, but it adds to a fundamental problem with our system: Employers and advisors usually act as though we have a retirement system. We don’t. We have a savings system, because the money can be--and is--used for a variety of other, nonretirement purposes.

Specifically, Congress is expected to eventually pass the provisions of the H.R. 1994 - Setting Every Community Up for Retirement Enhancement Act of 2019, or SECURE. Among a laundry list of items is a provision that would allow people to take up to $5,000 out of an IRA or defined-contribution plan for expenses for the birth or adoption of a child. After taxes, this will probably come to closer to $4,000, although that depends on the participants’ income and marginal tax rate.

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