Understanding Hardship Withdrawals from Workplace Retirement Accounts
What Happened in the Case of Marilyn Mosby
Last week, Marilyn Mosby, a former Baltimore prosecutor, was sentenced to 12 months of home confinement for taking illegal withdrawals from her city retirement account. She had claimed to use the money for financial hardship during the pandemic, but a jury found that her story was false.
Can You Go to Jail for Taking Money from Your Own Workplace Retirement Account?
Yes, taking illegal withdrawals from your workplace retirement account is a serious offense that can result in penalties, including imprisonment. In Ms. Mosby’s case, she withdrew money from her city retirement account under false pretenses, which violated the rules of her plan.
But This Was Her Own Money, Right?
Technically, the money belonged to the trust that contained the retirement plan, but there are restrictions on what it can do with the money it holds for participants. Employees have a right to the money, but they may not have the right to access it at all times.
Why Do Any of These Restrictions Exist at All?
The restrictions are in place to ensure that employees use their retirement savings for their own old age and not for other things. In exchange for the tax benefits they receive, lawmakers want to make sure that people use the money for their own long-term benefit.
How Do Hardship Exceptions Work?
Hardship exceptions allow employees to withdraw money from their retirement accounts under certain circumstances. To qualify, employees must be experiencing a significant financial need, such as medical expenses, education-related bills, or the threat of eviction or foreclosure. Employees must also have exhausted other resources before making a hardship withdrawal.
Are the Early Withdrawal Rules Different for Individual Retirement Accounts?
Yes, the early withdrawal rules for individual retirement accounts are more lenient. However, there are still taxes in many instances. Individual retirement accounts have their own set of rules for early withdrawals, and employees should consult with the account administrator to determine what is allowed.
How Much Do I Have to Worry About Getting in Trouble for Making an Impermissible Hardship Withdrawal?
If you tell the truth and follow the rules, you have nothing to worry about. However, if you try to deceive the system or make false claims about your financial hardship, you could face severe penalties, including imprisonment.
Alternatives to Hardship Withdrawals
If you’re facing a financial emergency, you may want to consider alternatives to hardship withdrawals. You can take a loan from your workplace retirement plan, if it offers that option. However, be careful not to take too many loans, as this could compromise your savings and force you to work longer or retire with less money.
Conclusion
The case of Marilyn Mosby serves as a reminder of the importance of following the rules when it comes to workplace retirement accounts. Taking illegal withdrawals or making false claims about financial hardship can result in serious consequences. Employers and employees alike should be aware of the rules and restrictions in place to ensure the long-term benefit of these accounts.
Frequently Asked Questions
Q: Can you go to jail for taking money from your own workplace retirement account?
A: Yes, taking illegal withdrawals from your workplace retirement account can result in penalties, including imprisonment.
Q: Why do any of these restrictions exist at all?
A: The restrictions are in place to ensure that employees use their retirement savings for their own old age and not for other things.
Q: How do hardship exceptions work?
A: Hardship exceptions allow employees to withdraw money from their retirement accounts under certain circumstances, such as medical expenses, education-related bills, or the threat of eviction or foreclosure.
Q: Are the early withdrawal rules different for individual retirement accounts?
A: Yes, the early withdrawal rules for individual retirement accounts are more lenient, but there are still taxes in many instances.
Q: Can I take a loan from my workplace retirement plan instead of a hardship withdrawal?
A: Yes, many workplace retirement plans offer loan options. However, be careful not to take too many loans, as this could compromise your savings and force you to work longer or retire with less money.
Q: What happens if I make a false claim about my financial hardship?
A: If you make a false claim about your financial hardship, you could face severe penalties, including imprisonment. It’s important to only make claims that are truthful and supportable with documentation.
Author: www.nytimes.com
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