Record Breaking Number Of Consumers Make Hardship Withdrawals From Fidelity

According to the latest unemployment rates, the number of jobless Americans remained unchanged at 9.5 percent between June and July of 2010

. Separate reports reveal that more Americans are facing foreclosure, bankruptcy and significant credit card debt, leaving many individuals seeking out measures to meet their financial obligations. As a result, some have turned to their retirement accounts for relief, despite the tax consequences.

A recent report released by Fidelity Investments reveals that more customers than ever have taken out hardship withdrawals during the second quarter of 2010. According to the data, 62,000 workers took out such a withdrawal from their 401(k) accounts during the second quarter of the year, an increase from the forty five thousand that engaged in the same transaction one year prior. However, analysts expressed their concern over the trend, noting that the same forty five thousand from one year ago took out a second hardship withdrawal this year, indicating that their financial situation has not improved.

There are certain occasions in which the government will allow consumers to receive early distributions from a retirement account, but hardship withdrawals do not qualify under current tax laws. This means that individuals who are younger than 59 1/2 and elect to make early withdrawals will face a 10 percent tax penalty.

In order to qualify for hardship withdrawals, consumers must prove immediate need. Generally, this includes using the funds to make payments for an impending foreclosure, certain medical expenses and burial or funeral expenses. Consumers facing other financial obstacles may also consult with their tax preparer to determine if their needs make them eligible for hardship withdrawals.

'We recognize that for some, taking a loan or a hardship withdrawal from their 401(k) may be their only option because it is their only form of savings,' Fidelity Investments Workplace Investing president James MacDonald said. 'However, we want to make sure that before workers tap their retirement accounts prematurely, they are fully educated about both the penalty that may be incurred and the long-term implications for their retirement.'

There are some instances in which consumers can take from their retirement accounts without incurring a penalty, especially if they plan to use the funds to make a down payment on a primary residence or pay for eligible education expenses at a qualifying college or university. Because the rules vary, consumers should contact their tax preparer or tax preparation service before making any decisions regarding their retirement account to ensure they have complete and accurate information.

by: Liberty Tax Service

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