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Do This Instead of an Early 401(k) Withdrawal
Vanguard said hardship withdrawals reached a record 6% last year as inflation and higher borrowing costs pushed more workers to tap retirement savings.
- A new Vanguard report released Tuesday shows participants making hardship withdrawals from their 401 plans rose to 6% last year, marking a record high as more Americans tap retirement funds for immediate emergencies.
- Jessica Roy, a personal finance columnist for The San Francisco Chronicle, says the increase is driven by financial pressure and rule changes. The Secure 2.0 Act, enacted under President Biden, allows people to withdraw up to $1,000 penalty-free.
- One $10,000 withdrawal at age 30 results in $64,000 of lost future growth at retirement. While early withdrawals typically incur a 10% tax penalty, hardship withdrawals meeting IRS-approved criteria avoid this additional fee.
- Financial experts suggest exploring alternatives before accessing retirement accounts, such as contacting credit card issuers for hardship programs. "It's really something you have to pick up the phone and call," Roy said, noting issuers may lower interest rates or waive fees.
- Prematurely accessing retirement accounts can jeopardize long-term financial stability, as 401 funds serve as a critical backstop. Workers struggling with debt might reduce contributions to the employer match level to maintain benefits while preserving retirement savings.
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Leaning Left0Leaning Right0Center27Last UpdatedBias Distribution100% Center
Bias Distribution
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