More People Are Forced To Withdraw Their 401(k)
Posted by admin in Economy,Retirement,Saving
More people are being forced by economic hardship to withdraw from their 401(k) retirement saving plans. During the second quarter, 2.2% of all 401(k) participants made hardship withdrawals during the 12 months. That's an increase from 2% in the prior year, and is highest in this decade.
Also, the percentage of 401(k) participants that had loans on their accounts is at 22% in the second quarter with an average loan of $8,650.
Most took loans and made withdrawals to avoid foreclosures or evictions, pay for college, or buy a home. The economy is pushing people to borrow against their 401(k) accounts to pay for critical living expenses.
For some of them this is their only option because it's their only form of savings. However, withdrawals made by people below 59-and-a-half years are taxed and are subject to a 10% penalty. The age of people making withdrawals ranged from 35 to 55. They could end up paying penalties of up to 40%, once state and federal taxes are added to the 10% penalty.
The increase in hardship withdrawals is linked to the economy, particularly the housing situation. Still, 98% of people with 401(k) plans are not making withdrawals. People need to prepare because when tax season comes, that money will be taxed as income. They should save some of that money aside to pay their taxes.
Those who made loans must pay them back, with interest but without a penalty. The usual interest rate is at about 4.5%, over five years.
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