(Bloomberg) — The number of people taking loans from their 401(k) retirement accounts increased 28% in the fourth quarter from a year earlier as older workers tapped their savings, according to Wells Fargo & Co.

The number is based on 1.9 million survey participants who have 401(k)s administered by the company, of which 34,987, or about 1.8%, took out loans, the San Francisco-based bank said last week in a statement. The average new loan balance rose 7% to $7,126.

U.S. workers may borrow from their 401(k) and pay the loan back to the account if their employer’s plan allows it, according to the Internal Revenue Service. Individuals who demonstrate financial need for reasons including medical expenses or the purchase of a primary residence also may take a so-called hardship withdrawal. Savers in their 50s were the most likely to borrow against their 401(k)s, Wells Fargo says.

 “The increased loan activity particularly among older participants is concerning because those are the years when workers can start to make ‘catch-up’ contributions and really need to focus on preparing for retirement,” says Laurie Nordquist, director of Wells Fargo Retirement. “This age is also the ‘sandwich generation,’ caught between paying for their kids’ education and supporting elderly parents.”

Employers usually require workers to pay back loans in full if they leave a job and tapping the accounts may mean people miss out on tax-free build-up of investment gains.

At Fidelity Investments, the largest provider of 401(k) plans, the portion of workers initiating a loan in the quarter rose to 3.1% from 2.9% a year earlier, according to Michael Shamrell, a spokesman for the Boston-based company.

 “Loan taking bounces around,” says Jean Young, a senior research analyst for Vanguard Group Inc.’s Center for Retirement Research. The number of new loans issued to participants in 401(k)s administered by Valley Forge, Penn.-based Vanguard declined 3% during all of 2012, Young says.

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