Americans are feeling the crunch of inflation. Many are turning to one of the few places they shouldn’t alleviate the pain — retirement funds.
According to a recent study by Vanguard, the percentage of Americans withdrawing funds from their retirement plans as new loans, non-hardship withdrawals, and hardship withdrawals has jumped this year. The most concerning aspect of this is the increase in hardship withdrawals. The report found that the percentage of Americans taking hardship withdrawals from their 401(k) retirement plans reached 0.5 percent in October, the highest level in almost 15 years. The increase indicates that people are feeling dire about their finances because hardship withdrawals come with steep penalties.
Retirement Plan Loans
As USA Today notes, you can borrow up to $50,000 from your 401(k) plans in the form of a loan to be repaid, or take non-hardship withdrawals while still working for your company. However, if you’re taking hardship withdrawals you’ll get hit with a 10 percent penalty and the IRS will likely withhold 20 percent of the withdrawal for taxes.
Use Other Savings
If you can, try not to withdraw funds from your retirement account. Especially for a hardship withdrawal. Instead, try your emergency funds, savings accounts or even your Roth IRA. The Roth IRA is a good last resort option because qualified withdrawals of your contributions are tax and penalty-free. You might also want to see if you qualify for a personal loan with a low, fixed-interest rate. Try a credit union for some good options. Your retirement account should always be your absolute last option for access to cash.