Congress may loosen 401(k) rules to allow Harvey and Irma victims to access their retirement savings without the usual 10 percent penalty on early withdrawals. The Washington Post reports mixed views from experts on the idea. In the past, the government has allowed “hardship loans” against 401(k) assets in the wake of disasters.
Individuals own the money in their 401(k) accounts, and after disasters they may need to use it. However, a better way for Congress to address that need is to create Universal Savings Accounts (USAs).
As Ryan Bourne and I describe in this study, USAs would provide a tax‐efficient vehicle for families to save for all purposes, including saving for unplanned costly events. USAs would be simpler and more flexible than current single‐purpose accounts in the tax code, including those for retirement, education, and other purposes.
When a disaster happened, families could simply withdraw money from their USAs as needed without government paperwork or penalties. They could leave their retirement accounts untouched.