A record number of Americans are risking their financial futures by making early withdrawals from their retirement accounts. CBS MoneyWatch personal financial advisor Ray Martin joins “CBS This Morning: Saturday” with more on this disturbing trend.
A record number of americans are risking their financial futures by making early withdrawals from their retirement accounts in fact 25% or one in four workers will take money out of their 401k savings accounts before they reach retirement age and the irs will collect almost six billion dollars in penalties for those early withdrawals cbs moneywatch personal financial
Advisor ray martin is here with more ray good morning good morning 25 percent of us workers that’s a huge number why is this happening yeah it used to be when americans are strapped for cash they would turn to credit or mortgages to loans are tied to their home to get that cash well since the mortgage and real estate crisis that we had more folks are cut off from
Those loans so they turn to the next place they can get quick cash taking early withdrawals from their 401k plans last year americans took some sixty billion dollars in early withdrawals from their 401ks paying some six billion dollars in early withdrawal penalty taxes it looks like the 401ks become america’s new piggy bank let’s talk about those penalties because
I think most people are aware that it counts as taxable income but i don’t think that they’re aware of not only the penalties but the difficulty in repaying the money if you get it out well that’s right when you take a hardship withdrawal from a 401k plan first of all your employer has to permit that withdrawal then you can’t put the money back it’s taxed and then
You’re usually barred from contributing to your 401k for up to six months so the money’s gone it’s taken out right i mean it looks like i mean on the surface it looks like a good deal you take a loan with low interest rates that you pay back to yourself and not to a bank in five years so it sounds like a good plan so what what can go wrong here well we’re talking
About hardship withdrawals loans could be a good idea alone is where you can take money out of your 401k pay interest back and then put the money back into the plan and it’s not taxable okay as long as a particularly dangerous though because if you take a loan from your 401k plan and then you suddenly lose your job the loan has to be repaid within 90 days and you
Just lost your job of course you don’t have the money to repay your loan the loan becomes taxable a penalty applies so a 401k loan and a sudden job loss is a combustible combination also if you have a loan your 401k plan and you haven’t paid it back and then you get another job offering you don’t want to go somewhere else for a job you got to pay that loan back
Before you can take that job offer if you don’t have the money to do it you’re going to be tethered to your employers stuck there because you have a 401k loan that you can’t afford to pay that statistically who’s tapping these 401k funds though well that’s right according to research from fidelity the largest service or 401k plans on the planet folks taking early
Withdrawals are twenty to thirty nine forty percent of those twenty to thirty nine are taking cashing out their 401ks when they leave or change jobs but some older workers are doing it too and 75% surveyed said why did they take an earlier withdrawal and pay taxes and penalties because they were struggling with everyday financial bills and obligations it really
Is surprising and i think people don’t realize it cuz like you said they don’t have the money in the house and now they’re looking at the 401k right martin thank you so much
Transcribed from video
Record number of Americans draining retirement accounts By CBS Mornings
