Hardship 401k Withdrawals Hit Record

In more troubling news that a lot of Americans are under water when it comes to bill, mortgages, and overall credit extensions, there is a new report that Fidelity came out with, detailing the finding that the last quarter had some of the highest hardship withdrawals from their 401k and retirement plans.

It shows that Americans are still really struggling, and it actually takes a lot to withdraw for hardship. In order to qualify for this type of withdrawal, you have to prove that you are having a very difficult time paying medical bills, or you are under threat of foreclosure on your home, or some such financial distress that warrants this withdrawal.

Not only that, you STILL get hit with a 10% early withdrawal fee, plus you have to pay taxes on the withdrawal at the end of that year. I mean I guess I get why they do this. They do it to deter people from dipping into their nest egg or any little thing, and they also do it to prove a point, that Uncle Sam doesn’t stand for giving you tax free money for years only to have you squander it away before you have to pay higher taxes on it down the line.

I think that’s sort of why they went with charging the 10% early withdrawal penalty, to discourage people from getting their money out in a lower tax bracket/lower tax times. The average age of the people who are having to use these early withdrawal options is reportedly between about 35 to 55 on average.

This is a huge shame, because this means that these people still have earning potential in their lives, and they are probably still contributing. Thanks to the hardship though, they may have had to stop contributing all together, or perhaps they had to reduce their contributions, missing out on years of interest building, and putting themselves behind the eight ball big time.

But hey, tough times are tough times, and I’m sure I’d do the same thing if my back were up against a wall. The earlier you start saving for your retirement the better. Uncle Sam may not be able to take care of us folks, especially for those of us, like me, who are years and years away from collecting social security.

That’s right, even though we’ve paid into it since we had our first jobs at sixteen or eighteen, we may not be getting jack squat, or we may not be getting nearly what we think we are. Of course, this is worst case scenario, but it’s really best to be prepared for the worst.