A taxing problem for middle-class America: Why are we penalizing people in need? 

For many decades, middle-class Americans have relied on investing in private retirement programs to supplement Social Security income and prepare for retirement. Recently, more of those same middle-class Americans have had to withdraw from those accounts early, forcing them to pay exuberant fines and taxes. 

For the last 20 years, I have been advising people not to take early distributions on their retirement accounts unless absolutely necessary — to safeguard their retirements. For many middle-class earners, however, these measures do not dissuade them; they just penalize them. 

These distribution taxes were created by the government as a preventive measure to encourage people to keep money in their retirement accounts. If we trust an individual’s decision to put money in, then we should trust an individual’s decision to take money out. 

Every time an individual withdraws from their retirement accounts early, they are taxed an extra 10 percent on their distributions. For what — as an “I told you so” penalty? Like, I told you not to touch it, so give Uncle Sam 10 percent extra. 

This begs the question: Do we really need — or want — the government to protect us? 

Despite the opportune time to invest in your savings, poor economic conditions and high inflation are forcing many Americans to withdraw from their retirement accounts early, forcing them to pay higher taxes. 

Congress must take action and remove these early distribution taxes. 

One of the primary advantages of scrapping the early distribution penalty lies in the increased flexibility it affords workers facing unexpected financial hardships. By removing the punitive barriers on retirement funds, individuals are empowered to effectively navigate unforeseen circumstances such as medical emergencies, job loss or other financial challenges without incurring hefty penalties. This newfound flexibility can serve as a crucial safety net, enabling individuals to weather turbulent times and prevent the exacerbation of financial strain. 

Moreover, the elimination of the early distribution penalty on private retirement funds aligns with the evolving landscape of work and retirement patterns in the 21st century. As the gig economy, freelancing and non-traditional employment arrangements become increasingly prevalent, traditional retirement structures may not always meet the diverse needs of today’s workforce. 

By removing the early distribution penalty, working-class Americans are encouraged to take a more proactive approach to retirement planning. The absence of punitive measures can incentivize individuals to engage with their retirement savings early on, fostering a culture of financial literacy and responsible long-term financial management. 

This shift toward proactive retirement planning can ultimately lead to improved financial well-being and greater retirement readiness among working-class Americans, whom these penalties burden the most. 

By promoting flexibility, adaptability and proactive retirement planning, this policy change has the potential to empower individuals to navigate financial challenges more effectively and build a more secure financial future. 

These taxes hurt vulnerable, hardworking Americans who are making difficult decisions to make ends meet. Removing them returns agency to American workers and allows them to take control of their finances. 

Michael Markey, a financial adviser, is a Republican candidate for Congress in Michigan’s 3rd Congressional District.