Why Millions Of Americans Are Tapping Their 401(k) Savings Early– finance.yahoo.com Source Link Excerpt:
A growing share of Americans are dipping into their retirement nest eggs to handle immediate financial challenges, underlining the economic strain many households are experiencing despite strong employment figures.
Last year, 4.8% of 401(k) account holders took early withdrawals for hardship reasons like paying medical bills or paying their home mortgage, according to data from Vanguard Group. It marks an all-time high, jumping from 3.6% the previous year and more than doubling the typical pre-COVID rate of about 2%.
Traditional 401(k) hardship withdrawals still come with costs. Account holders must pay income tax on the withdrawn amount and typically face a 10% penalty if they’re younger than 59 and-a-half.
Despite the increase in early withdrawals, overall 401(k) balances rose by an average of 10% in 2024, reaching a record high of $148,153. The share of participants with outstanding 401(k) loans remained steady at 13%, unchanged from 2023 levels.
As more employers not only automatically enroll workers but also automatically increase their contribution rates—typically by 1% annually until reaching about 10% of pay—retirement accounts are increasingly serving as de facto emergency funds for Americans facing financial difficulties.
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