Latest news with #SecuringaStrongRetirementActof2022
Yahoo
28-04-2025
- Business
- Yahoo
Americans are tapping into their retirement savings early. The dos and don'ts of 'hardship withdrawals'
More Americans are tapping into their 401(k) to make ends meet — treating it more like an emergency fund than a retirement savings plan. Hardship withdrawals are running 15% to 20% above the historical norm, Empower CEO Ed Murphy told Bloomberg TV. Empower is the second-largest retirement plan (by number of participants) in the U.S. I'm 49 years old and have nothing saved for retirement — what should I do? Don't panic. Here are 5 of the easiest ways you can catch up (and fast) Thanks to Jeff Bezos, you can now become a landlord for as little as $100 — and no, you don't have to deal with tenants or fix freezers. Here's how Nervous about the stock market in 2025? Find out how you can access this $1B private real estate fund (with as little as $10) While new rules make it easier to withdraw funds, some people may be turning to their retirement savings as prices on consumer goods — from groceries to cars — tick upward. 'There is a corollary to what you are seeing in the U.S. economy with deferred payments on auto loans and mortgages,' Murphy told Bloomberg TV. 'So that's something we monitor carefully.' Hardship withdrawal rules for 401(k)s changed in 2024, in accordance with the Securing a Strong Retirement Act of 2022 (SECURE 2.0). A hardship withdrawal allows you to withdraw money from your 401(k) to cover an 'immediate and heavy financial need,' according to the Internal Revenue Service (IRS). Some people may be making this decision based on financial hardship, such as housing or medical debt. A new report from Vanguard noted similar findings to Empower, with 4.8% of 401(k) participants initiating a hardship withdrawal in 2024 — up from 3.6% in 2023. While there are a few 'signals of a possible uptick in financial stress,' the report says that for some workers hardship withdrawals 'may serve as a safety net that otherwise may not have been available without plan-implemented automatic solutions.' Another report, this one from the Transamerica Center for Retirement Studies, found that more than eight in 10 (83%) of employed workers are saving for retirement. However, 37% say they've already tapped into their retirement accounts, 'including 31% who have taken a loan and 21% who have taken an early and/or hardship withdrawal,' according to the report. 'Today's workers are stuck between a rock and a hard place,' said Catherine Collinson, CEO and president of Transamerica Institute and TCRS, in a release. 'They are traversing disruptions in the economy, a tenuous employment market, and the high cost of everyday living — while being expected to self-fund a greater portion of their retirement income compared with prior generations.' Add to that the possibility of heading into a recession — with consumer confidence plummeting — and more Americans may find themselves struggling to pay the bills. 'We encourage people to have an emergency savings account, have at least two years of expenses set aside in the event these types of situations occur,' Murphy told Bloomberg TV. Even the IRS is prepared for an increase in hardship withdrawals, stating on its website that 'given the current economic climate, a greater number of participants may be requesting hardship distributions from their retirement plans.' Read more: This hedge fund legend warns US stock market will crash a stunning 80% — claims 'Armageddon' is coming. Don't believe him? He earned 4,144% during COVID. Here's 3 ways to protect yourself The amount you're allowed to withdraw is limited to the amount necessary to 'satisfy that financial need,' according to the IRS. However, if you're under age 59½, your withdrawal could come with a 10% early withdrawal penalty. You may be able to avoid this penalty if you meet the IRS's eligibility for safe harbor distributions, such as the pending foreclosure of your home. But it won't get you out of paying taxes. The money you withdraw from your 401(k) is taxable income, which could potentially bump you into a higher tax bracket. If you're not sure how this could impact your tax bill, it could be worth chatting with a financial advisor. There are also longer-term consequences, such as the loss of compounding growth, which could significantly hinder your retirement goals. That's why a hardship withdrawal is usually considered a last resort. If you've already eaten through your emergency fund, there are still some options you could consider before a hardship withdrawal. For example, you may be able to withdraw from other retirement accounts. A Roth IRA, where you've already paid tax on your contributions, may be a preferable option since you won't be taxed on withdrawals — though you'll still have to pay an early-withdrawal penalty if you're under age 59½. You could also take out a 401(k) loan (versus a hardship withdrawal). That means you pay the money back, but the interest on the loan goes into your account. Check with your HR manager to see if this is an option, since not all plans offer it. You could also look for ways to reduce expenses (like cancelling an upcoming vacation or selling a second vehicle) or earning extra money (such as taking on extra shifts at work or renting out a room in your home). If you've exhausted all other options and decide to make a hardship withdrawal, it's worth consulting a financial advisor as well as your plan advisor so you fully understand how it will impact you now and in your golden years. Want an extra $1,300,000 when you retire? Dave Ramsey says this 7-step plan 'works every single time' to kill debt, get rich in America — and that 'anyone' can do it Rich, young Americans are ditching the stormy stock market — here are the alternative assets they're banking on instead Here are 5 'must have' items that Americans (almost) always overpay for — and very quickly regret. How many are hurting you? This article provides information only and should not be construed as advice. It is provided without warranty of any kind. Sign in to access your portfolio
Yahoo
07-04-2025
- Business
- Yahoo
Vanguard finds more Americans are treating their 401(k)s like emergency funds
Life doesn't always go as planned. Maybe you lost your job or you're facing uninsured medical expenses. And maybe you've already run through your emergency savings. I'm 49 years old and have nothing saved for retirement — what should I do? Don't panic. Here are 5 of the easiest ways you can catch up (and fast) Nervous about the stock market in 2025? Find out how you can access this $1B private real estate fund (with as little as $10) Here are 3 'must have' items that Americans (almost) always overpay for — and very quickly regret. How many are hurting you? It may be tempting to tap into your 401(k), especially if you still have a few decades to go before retirement. But should you? More Americans are treating their 401(k) retirement savings like an emergency fund. That's according to a preview of Vanguard's How America Saves 2025 report, which says that 4.8% of participants initiated a hardship withdrawal in 2024, up from 3.6% in 2023. The full report, based on nearly 5 million defined contribution (DC) plan participants, will be available in June. A hardship withdrawal is a one-time withdrawal from your 401(k) for an 'immediate and heavy financial need,' according to the IRS. This lump sum is limited to 'the amount necessary to satisfy that financial need.' In 2024, 401(k) hardship withdrawal rules changed in accordance with the Securing a Strong Retirement Act of 2022 (SECURE 2.0). 'Given that it's now easier to request a hardship withdrawal and that automatic enrollment is helping more workers save for retirement, especially lower-income workers, a modest increase isn't surprising,' noted the Vanguard report. Overall, despite a 'few signals of a possible uptick in financial stress,' the report noted that participants are 'generally resilient' and 'maintain a long-term approach to retirement saving.' That could be, in part, because of the growing adoption of automatic enrolment (where contributions are automatically deducted from your paycheck) and the growing use of professionally managed allocations, which has helped to increase savings while improving 'age-appropriate equity exposure.' However, these numbers reflect the economic trends of 2024, including real GDP growth, moderating inflation and low unemployment, along with strong consumer spending — though household debt continued to rise during the year. But the economic outlook isn't an sunny in 2025, with analysts lowering their GDP forecast for 2025 and raising the probability of a recession. So it's possible that hardship withdrawals could increase in 2025. 'Given the current economic climate, a greater number of participants may be requesting hardship distributions from their retirement plans,' the IRS currently states on its website updated this month. Read more: Trump warns his tariffs will spark a 'disturbance' in America — use this 1 dead-simple move to help shockproof your retirement plans ASAP Generally speaking, a hardship withdrawal is considered a last resort. If you're thinking about going this route, you may want to exhaust all other options first. If you've already used up your emergency fund, you may want to consider other sources of income. For example, if you have two vehicles, could you sell one of them? Could you take on a side gig to earn extra money? Could you get a roommate to cut down on household expenses? You may be able to withdraw from your other retirement savings, such as a Roth IRA (that could be preferable to a hardship withdrawal, because these contributions have already been taxed). You may want to consult with your financial advisor to crunch the numbers. Another option is a 401(k) loan, which you have to pay back — but at least the interest you pay on the loan goes back into your account. However, not all plans offer 401(k) loans; you'll have to check with your HR department to see if this option is available to you. When you make a hardship withdrawal, that money is considered taxable income. Plus, you'll be subject to a 10% early withdrawal penalty unless you're age 59½ or older or qualify for another exception. These may include the birth or adoption of a child, a federally declared disaster, or total and permanent disability. You may also be able to take one penalty-free withdrawal of up to $1,000 per calendar year for personal or family emergency expenses, but you will have to repay the distribution within three years. There are also the long-term costs of hardship withdrawals. You'll lose out on the compounded earnings you could have made from that money if it was still sitting in your account. If you've exhausted all other options and still decide to go ahead with a hardship withdrawal, talk to your plan administrator so you understand how it works and the potential consequences. Want an extra $1,300,000 when you retire? Dave Ramsey says this 7-step plan 'works every single time' to kill debt, get rich in America — and that 'anyone' can do it Rich, young Americans are ditching the stormy stock market — here are the alternative assets they're banking on instead Cost-of-living in America is still out of control — and prices could keep climbing. Use these 3 'real assets' to protect your wealth today, no matter what Trump does This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
