Elonka wrote:
There are already a few exceptions to avoid early withdrawal penalties on an IRA:

The early withdrawal penalty does not apply to distributions that:

1. Occur because of the IRA owner's disability. (This can be a very narrow definition, so if you get a severe paper cut, don't consider a Roth IRA distribution for a disability until you review IRS Code Section 72(m)(7) and IRS Publication 590.)
2. Occur because of the IRA owner's death.
3. Are a series of "substantially equal periodic payments" made over the life expectancy of the IRA owner.
4. Are used to pay for unreimbursed medical expenses that exceed 7 1/2% of adjusted gross income (AGI).
5. Are used to pay medical insurance premiums after the IRA owner has received unemployment compensation for more than 12 weeks.
6. Are used to pay the costs of a first-time home purchase (subject to a lifetime limit of $10,000).
7. Are used to pay for the qualified expenses of higher education for the IRA owner and/or eligible family members.
8. Are used to pay back taxes because of an Internal Revenue Service levy placed against the IRA.

However, with the economy worsening, these exceptions should probably be expanded. There are plenty of people with substantial funds in their IRAs right now, but they're reluctant to touch the money because of the withdrawal penalties. However, if the penalties were temporarily waived, people could be more comfortable about accessing the cash, spending would increase, and it would help get "Adam Smith's spinning top" of the economy moving again.

Elonka

This would have at least two additional serious consequences:
1. People would pull more money out of the market (causing yet more downward pressure, especially in mutual funds where many retirement assets are kept)
2. People would have less money for retirement (which will likely mean more social pressure in the future)

Given that the people most likely to have "substantial retirement assets" are those who are approaching retirement age... this seems like a short-term-gain/long-term-lose. If you are out of money, the tax penalties are not going to stop you -- just like payday loans make no sense to the well-employed, but do brisk business. Opening up IRAs would just open up another non-sustainable "ATM" vehicle (like mortgage refis of previous days).

RE: Idea: To help the economy, change the Roth IRA early withdrawal penalties