Senate Moves to Extend Early Withdrawal Penalty Exemption for Reservists

June 15, 2007 ( - A bill introduced in the U.S. Senate would make permanent the exemption for reservists or National Guard members from the 10% early withdrawal penalty on independent retirement account or retirement plan distributions.

A provision in the Pension Protection Act of 2006 applied the exemption to eligible reservists activated after September 11, 2001, and before December 31, 2007 (See IRS Implements Lifting of 10% Early Withdrawal Penalty for Reservists ). The legislation requires that the reservist or National Guard member be called to active duty for 180 days and repay the withdrawal within two years.

In addition, the legislation would allow the families of soldiers killed in the line of duty to contribute up to 100% of survivor benefits to retirement accounts, according to an announcement  of the legislation from the Committee on Finance. The bill also includes tax breaks for small businesses that continue to pay some salary to reservists or National Guard members who are called to active duty, and eliminates some of the reporting requirements for that income.