subject: Withdrawals From Retirement Funds On The Rise [print this page] The number of employees getting early distributions from their retirement plans is at an historic high, as many are unable to count on their regular income to get them through the recession, says a survey by Fidelity Investments, the country's biggest retirement savings plan administrator. The mutual fund company runs the 401K plans of approximately 11 million employees.
11% of all workers with 401K plans from the said company took out loans from their retirement funds from June 2009 to June 2010, compared to 9% from a year earlier. Before the third quarter of this year, participating employees with outstanding 401K loans increased from 20% the previous year to 22% this year. Hardship withdrawals also increased to 2.2% from 2%, although the increase is low compared to the other findings. These withdrawals were used by the borrower to prevent property foreclosure or to pay for his or her children's educational expenses.
With the 401K account being the average employee's primary venue for savings, it also becomes the main source of financial relief. Withdrawals and loans were found to be in the duration of the average worker's peak working and earning years - between the ages of 35 and 55 years old.
As more businesses are starting to freeze or cancel pensions and other plans that provide defined employee benefits, these same workers are depending more on their 401K accounts and other plans funded by defined contributions to save up for retirement. The aforementioned rise in 401K withdrawals may be detrimental to the employee's nest egg, as tax codes and other plan guidelines provide disincentives for early withdrawals to encourage more people to save. Withdrawals by workers younger than 59 and a half years can be drastically cut by the early distribution penalty, as well as the amount's taxation as ordinary income.
