401(k) 'hardship' withdrawals surge to another record as high inflation stings
‘Mornings with Maria’ panelists react to the February consumer price index data.
A record-breaking number of Americans are making emergency withdrawals from their 401(k) retirement plans in order to cover a financial hardship amid the ongoing inflation crisis, according to new data from Vanguard Group.
Nearly 3.6% of workers participating in employer-sponsored 401(k) plans made a so-called «hardship» withdrawal in 2023, according to Vanguard, which tracks about 5 million accounts. That marks a major increase from the 2.8% rate recorded in 2022 and the pre-pandemic average of about 2%. It marks the highest level since Vanguard began tracking the data in 2004.
Hardship withdrawals allow workers to tap their 401(k) for an «immediate and heavy financial need.»
Individuals who make these types of withdrawals owe income tax on the money and could be hit with a 10% early withdrawal fee if they are under the age of 59½. However, the penalty can be waived if workers provide adequate evidence that the money is being used for a qualified hardship, such as a medical expense.
INFLATION RAN HOTTER THAN EXPECTED IN FEBRUARY AS HIGH PRICES PERSIST
A stack of retirement account statements. Shot with shallow depth of field. (iStock / iStock)
A person who takes a hardship withdrawal also cannot pay it back to their 401(k), and cannot roll that money into another retirement savings account.
WHY ARE GROCERIES STILL SO EXPENSIVE?
The increase in Americans tapping their 401(k)s for emergency purposes comes as they confront stubbornly high inflation that has rapidly eroded workers' purchasing power.
About 40% of individuals who dipped into their 401(k) last year did so to avoid foreclosure – up from about 36% in 2022, according to the
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