More Montanans Raiding Their Retirement Funds for Emergencies

Missoula, MT (KGVO-AM News) - Many Montanans, as well as millions of other Americans are raiding their retirement accounts for financial emergencies.

KGVO News spoke to Walt Kero with Kero Byington and Associates CPA’s on the Talk Back show recently about this troubling trend, and what consequences it might have on the future.

Millions of Americans are Raiding their Retirement Accounts to Pay Bills

“According to Fidelity and Vanguard, more Americans are raiding their retirement funds for emergencies than ever before,” began Kero. “Hardship withdrawals at Fidelity were 2.1 percent in 2018, and now they're almost seven percent, at 6.9 percent. Now bear in mind Fidelity handles 45 million 401k accounts, so we're talking significant numbers here. That means 7 percent of 45 million is going to push it to about 3 million people.”

Kero then spoke directly about the Vanguard Group.

CPA Walt Kero Provided Numbers for both Fidelity and Vanguard

“The Vanguard Group also reports hardship withdrawals,” he said. “Now this is different than Fidelity. But hardship withdrawals were 2.1 trillion transactions per 1000 in 2018, and it's doubled to 4.3 in 2023. Also, at Fidelity 12.6 percent of participants either borrowed or took hardship withdrawals from their 401 K accounts, and that amounts to 5,760,000 accounts.”

Many believe that taking funds from their retirement accounts won’t directly affect the future, however, Kero said a significant amount of taxes will be owed for that withdrawal.

Taking Money from Retirement Accounts Means Taxes and Penalties

“The problem is that you got to pay income tax on it, if you pull the money out early to pay off current bills, and if you're under 59 and a half, you get socked with an additional 10 percent penalty for an early withdrawal. So, you could end up with 30 to 40 percent of that early withdrawal being paid out in taxes."

Financial experts also state that raiding personal retirement funds will also mean the loss of future tax-deferred compounded returns.

According to Fidelity, the top two reasons given for the uptick were to avoid foreclosure or eviction, and for medical expenses.