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  • Writer's pictureAmi Kassar

AmiSight 3/29: Investors Tapping into 401(K) More Often for Emergency Funds

Surging balances in 401(k) accounts have made retirement savings more attractive as a source to address financial emergencies. According to data from Vanguard Group, an increasing number of Americans are tapping into their 401(k) accounts for emergency funds, with a record share withdrawing early in 2023.

In “More Americans Are Treating Their 401(k)s Like Cash Machines,” the Wall Street Journal looks at how this trend reflects the growing comfort among account holders in using their retirement savings to address financial challenges amid rising living costs.

The Internal Revenue Service allows withdrawals for hardship-related reasons, including preventing evictions and paying medical and tuition bills. Although the withdrawals come with a 10% penalty if they are younger than 59½ years old, tapping into a healthy 401(k) account may still be more attractive than a higher-interest traditional loan.

Despite the surge in early withdrawals, the popularity of automatic enrollment programs has led to more workers saving for retirement, with many plans incorporating auto-escalation features to boost savings rates. As a result, a record number of 401(k) participants saved more in 2023 compared to the previous year.

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