IBJNews

More cash-strapped workers dipping into 401(k) accounts

Back to TopCommentsE-mailPrintBookmark and Share

In the wake of news about a spike in new applications for unemployment benefits comes another potentially troubling sign: A record number of workers made hardship withdrawals from their retirement accounts in the second quarter.

What's more, the number of workers borrowing from their accounts reached a 10-year high, according to a report issued Friday by Fidelity Investments.

The trends reflect the financial stress many workers find themselves in as the economy struggles to find sure footing, said Beth McHugh, Fidelity's vice president of marketing insight.

High unemployment and companies cutting back on overtime or overall hours have reduced the take-home pay of many workers.

"People tend to be taking home less," she said. "As a result the percentage of individuals initiating hardship distributions is one of the things we're concerned about."

Fidelity administers 17,000 plans, which represents 11 million participants. In the second quarter, some 62,000 workers initiated a hardship withdrawal. That's compared with 45,000 in the same period a year ago.

What's also eye-opening is that 45 percent of participants who took a hardship withdrawal a year ago, took another one this year, McHugh said.

To be eligible for a 401(k) hardship withdrawal, individuals must demonstrate an immediate and heavy financial need, according to IRS regulations. Certain medical expenses; costs relating to the purchase of a primary home; tuition and education expenses; payments to prevent eviction or foreclosure on a primary home; burial or funeral expenses; and repair of damage to a primary home meet the IRS definition and are permitted by most 401(k) plans.

A key concern is that these withdrawals are just that, they are not loans. As a result there can be a significant impact on someone's overall retirement savings. If the worker is younger than 59½, they'll pay a 10 percent penalty for early withdrawal in addition to taxes.

The average age of the workers taking hardship withdrawals is between 35 and 55, their peak earning years. It's also often a time when competing financial challenges emerge, McHugh said.

The good news in the report was that the average 401(k) account balance as of the end of the second quarter was $61,800; up 15 percent from the same time last year, but down from the end of the first quarter of 2010.

ADVERTISEMENT

Post a comment to this story

COMMENTS POLICY
We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
 
You are legally responsible for what you post and your anonymity is not guaranteed.
 
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in IBJ editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
 
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
 
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
 

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by
ADVERTISEMENT

facebook - twitter on Facebook & Twitter

Follow on TwitterFollow IBJ on Facebook:
Follow on TwitterFollow IBJ's Tweets on these topics:
 
Subscribe to IBJ
  1. They can always get jobs at the Post office.

  2. Hello i am Clarisa Steve from Florida USA,when i was in need of a loan of $230,000 to transit a business my friend introduced Mark Oscar loan firm to me because she got a loan from them sometime ago, so I was so scared because of the scams in the internet but my friend encouraged me to give them a try and i gave them a try and i got my loan within 4hrs and their ways was very easy no credit check,no cosigner,no collateral and their interest rate is just 2%, so i will advice anyone out there that need a loan to contact them via their Email:(oscarloanfinance@hotmail.com).

  3. "This was a very localized, Indiana issue," he said. As in, Indiana failed to expand Medicaid to cover its poor citizens resulting in the loss of essential medical services, including this EMS company. Well done, Indiana GOP. Here are the real death panels: GOP state governments who refuse to expand Medicaid for political reasons.

  4. In the "one for all, all for none" socialist doctrine the sick die...this plus obama"care" equates to caucasian genocide plus pushed flight to cities thus further eroding the conservative base and the continualed spiral toward complete liberal/progressive/marxist America.

  5. There is a simple reason why WISH is not reporting on this story. LIN has others stations in different markets that are affiliated with CBS. Reporting about CBS blindsiding WISH/LIN due to CBS's greed and bullying tatics would risk any future negoations LIN will have with CBS in other markets.

ADVERTISEMENT