The fiscal challenges faced by many American workers due to COVID and inflation have been plentiful, and in some cases, brutal. For those hit the hardest, the drastic step of taking a 401(k) hardship withdrawal can feel like the only option, but employers should stand ready with education and encouragement to remind employees that there are better ways to establish savings for a rainy day.
According to Vanguard, 401(k) hardship withdrawals — those made because of an immediate and heavy need, and which are subject to income tax as well as applicable early withdrawal fees — are at an all time high. This lump sum removal from the account, which must be approved by the plan provider, can have devastating effects on people’s ability to accumulate savings for retirement and their financial futures overall. Timothy Flacke, executive director and co-founder of non-profit financial solutions company Commonwealth, says that employers can play a key role in re-directing their employees to better methods of tackling present financial needs.
