Some Americans are struggling to feel comfortable with their finances, thanks in part to inflation, and they’re looking to their retirement accounts for help. A handful of plan providers have noticed more workers raiding their retirement savings, either as a loan or a hardship distribution. Reasons included debt repayment, emergency scenarios and large purchases.
“People are dipping into retirement savings because they lack emergency savings,” said Catherine Collinson, chief executive officer and president of nonprofit Transamerica Institute. “There are telling findings that illustrate what people have been through over the last few years.” There are a few ways to take an early withdrawal from a workplace retirement account, such as a 401(k) plan. A loan allows workers to pay back the amount they took over time, whereas a hardship distribution is used for “immediate and heavy financial need,” according to the Internal Revenue Service. The latter is taxed. Early withdrawals can also come with a 10% penalty, unless the individual is 59 1/2 years old or qualifies for an exception. Loans must be paid back to the plan, with interest, in a predetermined time …
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