Bill would exempt reservists from 401(k) penalty

WASHINGTON--Legislation introduced in the Senate this week would exempt employees called up from the reserves or National Guard for active duty and withdrawing funds from their 401(k) or other saving plans from the 10% penalty tax that applies on distributions taken before age 59½.

The bill--introduced by Finance Committee Chairman Max Baucus, D-Mont., and Charles Grassley, R-Iowa, the panel's ranking minority member--would make permanent a provision in federal law, now set to expire at the end of 2007, that exempts the preretirement distributions from the 10% penalty tax so long as certain conditions are met.

To qualify for the exemption, the reservist would have to be called for active duty for at least 179 days.