Fertility treatment retirement withdrawal exemption

Full Title:
Fertility Cost Relief Act

Summary#

This bill would let people take certain withdrawals from eligible retirement plans to pay for fertility treatment without paying the usual 10% early‑withdrawal tax (the additional tax that applies to many withdrawals before retirement age). It sets a lifetime dollar limit and defines which kinds of fertility expenses qualify. The main policy goal is to reduce one financial penalty that can make fertility care more costly.

  • Main change: Allows "qualified fertility treatment distributions" from eligible retirement plans to be exempt from the 10% early withdrawal tax, subject to rules below.
  • Lifetime limit: $20,000 per individual (indexed for inflation after 2026).
  • Timing and use: The money must be used within 1 year of the withdrawal for the person’s, their spouse’s, or their domestic partner’s qualified fertility expenses.
  • What counts as qualified expenses: Includes egg/sperm/embryo preservation, artificial insemination, in vitro fertilization and similar assisted reproductive technologies, embryo genetic testing, fertility medications, gamete donation, and other fertility items HHS later allows by regulation.
  • Which plans are covered: Most defined contribution plans (for example 401(k), 403(b), and 457 plans) are covered; defined benefit (traditional pension) plans are excluded.
  • Other plan rules: The bill says these withdrawals are not treated as “eligible rollover distributions” (so they generally cannot be rolled directly into another retirement account) and it includes a repayment mechanism similar to an existing repayment rule referenced in the tax code.

What it means for you#

  • Retirement savers who need fertility care: You could withdraw up to a lifetime total of $20,000 from eligible retirement accounts for fertility expenses without paying the 10% early‑withdrawal penalty, as long as you use the money within one year for qualifying costs.
  • Income tax status: The bill removes only the early‑withdrawal penalty. It does not change ordinary income tax rules. Withdrawals will likely still be included in taxable income unless other tax rules apply.
  • People using a spouse’s or domestic partner’s plan: The bill allows use of the distribution for the saver, the saver’s spouse, or domestic partner.
  • Plan administrators and employers: Plans will need to identify and process these distributions, track lifetime limits across years and plans, and apply the rule that these distributions are not eligible for rollover. This may change plan paperwork and reporting.
  • Health care providers and patients: This could make paying for fertility procedures easier for some people who otherwise could not afford upfront costs, by allowing early access to retirement funds without the penalty.
  • Pension (defined benefit) plan participants: The bill does not allow penalty‑free withdrawals from defined benefit pension plans.

Expenses#

No publicly available information on the bill’s fiscal cost is included in the bill text or the supplied material.

  • The bill removes the 10% additional tax on a subset of early distributions; that could reduce federal penalty revenue, but no estimate is provided here.
  • Plans and employers may incur administrative costs to implement new distribution rules, track lifetime limits, and report these transactions to the IRS.
  • Individual taxpayers may still face ordinary income tax on amounts withdrawn; any tax owed is a private cost to the individual.
  • It is unclear whether changes to withholding or tax reporting rules will add compliance costs for payroll or plan recordkeepers.

Proponents' View#

  • The bill appears intended to reduce the financial barrier that the early‑withdrawal penalty creates for people seeking fertility care.
  • Supporters may argue this helps people afford common fertility treatments by removing a penalty that otherwise increases the cost of using retirement savings for those needs.
  • The $20,000 lifetime cap targets relief to limited amounts rather than allowing unlimited penalty‑free access to retirement funds.
  • Including a repayment rule may allow people to put withdrawn amounts back into retirement accounts under conditions similar to existing repayment provisions, protecting long‑term retirement savings in some cases.

Opponents' View#

  • One concern is that the bill does not change ordinary income tax treatment; people may still owe income tax on withdrawals, which could be a surprise unless clearly communicated.
  • The bill could encourage tapping retirement savings earlier, which may reduce long‑term retirement security for some individuals.
  • It is unclear how the repayment option will work in practice because the bill refers to another rule by reference; plan participants and administrators may need guidance.
  • The rule that these distributions are not eligible for rollover could prevent people from moving the money into other tax‑advantaged accounts, which may complicate tax planning.
  • Administrative and recordkeeping burdens on employers and plan administrators could increase, especially since the lifetime limit must be tracked across plans and years.