A record number of Americans withdrew money from their 401(K) plans last year for financial emergencies, new numbers reveal.
Data from Vanguard Group, one of the largest retirement plan providers in the United States, reveals that 3.6% of participants took early withdrawals from their accounts in 2023.
Vanguard manages nearly 5 million retirement accounts, meaning about 180,000 customers were forced to withdraw their savings last year alone.
Emergency withdrawals have hit record highs for the second year in a row, as soaring costs for everything from groceries to gasoline and soaring interest rates take a toll on household budgets.
In 2022, approximately 140,000 people, or 2.8% of participants, made emergency withdrawals from their Vanguard 401(K) accounts.
![Data from Vanguard Group, one of the largest retirement plan providers in the U.S., reveals that 3.6% of participants took early withdrawals from their accounts in 2023.](https://i.dailymail.co.uk/1s/2024/03/11/16/82322413-13183137-image-a-39_1710173256336.jpg)
Data from Vanguard Group, one of the largest retirement plan providers in the U.S., reveals that 3.6% of participants took early withdrawals from their accounts in 2023.
401(K) plans are designed to keep your savings out of reach until you reach retirement age.
The Internal Revenue Service (IRS) allows withdrawals if you have an “urgent and significant financial need.” This includes events such as flood damage to your home, avoiding eviction, and large medical bills.
However, Americans must pay income taxes on difficult withdrawals from 401(K)s and traditional IRAs, and are often subject to a 10 percent penalty if they are under age 59 1/2.
According to Vanguard data, wall street journalmore than 75% of last year’s hardship distributions were $5,000 or less.
Additionally, nearly 40% of people who took money out of their 401(K) did so to avoid foreclosure, up from 36% a year ago.
The announcement comes as another study finds home foreclosures are on the rise across the country as Americans continue to grapple with soaring interest rates and rising costs.
In January, According to the real estate data provider’s latest statistics, 37,679 properties have filed for foreclosure filings. atom – 10% increase from previous month.
![Home foreclosures are on the rise across the country, with some states worse off than others as Americans continue to grapple with soaring interest rates and rising costs.](https://i.dailymail.co.uk/1s/2024/03/11/16/81637267-13183137-Home_foreclosures_are_on_the_up_across_the_US_as_Americans_conti-a-41_1710174082160.jpg)
Home foreclosures are on the rise across the country, with some states worse off than others as Americans continue to grapple with soaring interest rates and rising costs.
In recent years, changes in federal law have made it easier for Americans to withdraw money from their retirement accounts.
For example, in 2018, Congress removed the requirement that savers take out a 401(K) loan before withdrawing their hardship funds.
401(K) loans are managed by participants’ plans and allow them to borrow money from their retirement savings and pay it back over time with interest.
About 13% of participants had 401(K) loan balances at the end of last year, up from 12% in 2022, Vanguard said.
Financial planner Marissa Reale told DailyMail.com last year how taking out a loan is better than taking it out because you can pay it back slowly and plan for retirement.
“But before you do that, we recommend that you first try a credit card loan with 0 percent APR. If your credit is good, this is a good option,” she said.
“If not, homeowners can always consider taking out an equity loan on their home, which is an option many people don’t consider.”
![Americans must pay income taxes on hardship withdrawals from a 401(K) or traditional IRA. Additionally, if you are under age 59 1/2, you will often be subject to a 10% penalty.](https://i.dailymail.co.uk/1s/2024/03/11/16/82322409-13183137-image-a-40_1710174072228.jpg)
Americans must pay income taxes on hardship withdrawals from a 401(K) or traditional IRA. Additionally, if you are under age 59 1/2, you will often be subject to a 10% penalty.
But it’s not all bad news.
The average 401(K) balance also increased last year, even as more Americans are forced to take money out of their retirement savings.
According to Vanguard, average balances rose 19% last year, largely due to strength in the stock market.
The stock market rebounded in 2023, with the S&P 500 index of America’s largest companies ending the year up 24%.
This is a welcome change from 2022, when the major averages slumped and wiped an average of 20 percent from average 401(K) account balances.