Proposal Allowing Penalty Free Distributions for Federal Contractors Introduced
Senator Catherine Cortez Masto (D-NV) has introduced S. 2964, the Emergency Relief for Federal Contractors Act of 2025. The proposal would allow penalty free distributions from eligible retirement plans of up to $30,000 for a taxable year to applicable individuals impacted by a federal government shutdown. Applicable individuals include the following.
- A federal contractor or employee of a federal contractor placed on unpaid leave without pay
- An employee of a federal grantee or of a state whose compensation is advanced or reimbursed by the federal government and is furloughed or working without pay or a decrease in pay
- Who is an employee of the District of Columbia Courts, Public Defender Service for the District of Columbia, or the District of Columbia government and is furloughed or working without pay
The income from the distribution could be included ratably over a three-taxable-year period and the distribution could be repaid. The bill has been referred to the Senate Finance Committee.
