Rep. Haley Stevens (D-MI) last week introduced legislation that would waive early withdrawal penalties for victims of retirement account fraud.
The legislation, named No Penalties for Victims of Fraud Act, is aimed at easing the financial burden for those impacted by 401(k) or retirement plan account fraud. It would ignore the 10% early withdrawal fee imposed by those who remove money from their retirement accounts before age 59 ½.
The bill would waive withdrawal penalties from retirement accounts if the victims can document their fraud losses through law enforcement or court verification. Despite not facing penalties, victims would still need to repay the amount withdrawn.
Legislation comes as more Americans experience cyber-attacks that target their long-term savings.
“We’ve seen a significant uptick in scams targeting Americans’ hard-saved retirement funds,” said Rep. Stevens. “And for victims of fraud not yet at retirement age, it’s a double whammy of lost savings and then being hit with an early withdrawal penalty. No fraud victim should be punished for being targeted, and this critical legislation will make the burden just a little bit lighter for those who have already lost so much.”
The National Consumers League and the Consumer Federation of America both endorsed the bill and released statements acknowledging their support.
“Fraud victims are harmed enough when criminals steal their life savings,” said the National Consumers League Vice President of Public Policy, Telecommunications, and Fraud John Breyault in a statement. “The last thing victims should worry about after being scammed is a bill from the IRS. NCL is thankful for Representative Stevens’ efforts to reduce the burdens fraud victims face after a crime has occurred.”
“We support this commonsense bill that will protect victims of fraud,” followed Adam Rust, director of financial services for the Consumer Federation of America. “In 2023 alone, consumers reported losing almost $5 billion of their investments to scammers. The No Penalties for Victims of Fraud Act will shield innocent people from further harm by exempting them from having to pay taxes for losing their life savings. The scale of fraud is growing, making it all the more urgent that lawmakers act now to address this oversight in our tax laws. “
The bill has since been referred to the House Ways and Means Committee.
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Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with over six years of experience and a passion for telling stories and reporting news. Amanda received her degree in journalism and government and politics at St. John’s University. She is originally from Queens, New York, but now resides in Denver, Colorado with her partner. In her free time, Amanda enjoys running, cooking, and watching the latest drama show.
