In these tough economic times, many Americans are making withdrawals from their 401K retirement accounts, according to a new report by Fidelity Investments.
In the second quarter, one in four workers are removing their money early in what economists call "hardship" withdrawals. The Fidelity report also showed those borrowing from their savings plans had reached a 10-year-high.
"People tend to be taking home less," Beth McHugh, Fidelity's vice president of marketing insight, explained. "As a result the percentage of individuals initiating hardship distributions is one of the things we're concerned about."
According to Fidelity, withdrawals made by people under 59.5 years old are taxed and subject to a 10 percent penalty.
"It's always unfortunate when a young person take money out of the plan because they not only have to play the taxes and penalties, which can be quite severe, but they lose that long term compounding effect which can have multiple effects on their retirement," explained David Wray, president of Profit Sharing/401K Council of America.
The Internal Revenue Service stipulates that people must show an immediate or great financial need to make an early withdrawal.