There's been an uptick in the number of Americans turning to their 401(k) plans to help with financial woes, according to data released by Bank of America. CNN reports the banking giant saw a 36% increase in "hardship" withdrawals in Q2 as compared to the same period a year prior. Some 15,950 participants, or 0.52% of all participants, took a hardship distribution that quarter. But the data "tells two stories," says BofA Head of Retirement and Personal Wealth Solutions Lorna Sabbia in a press release: "one of balance growth, optimism from younger employees and maintaining contributions, contrasted with a trend of increased plan withdrawals."
Generally speaking, BofA found that Millennials and Gen Z stepped up their 401(k) game in Q2, with 19.3% of Gen Zers and 11% of Millennials increasing their contribution rates. Overall, the average account balance in June 2023 among BofA's more than 4 million participants was $82,300, up from $75,050 at the end of 2022. In response to BofA's findings, financial advisor Danielle Lucht tells the National Desk that "your 401(k) is the worst place to take money out of in a hardship situation"; she recommended first looking into a 401(k) loan. Some 2.5% of all participants took a 401(k) loan in Q2, up very slightly from 2.3% a year prior.
Per the IRS, a hardship distribution can only be made if there is an "immediate and heavy" financial need, and the amount that may be withdrawn is limited to the amount needed to take care of that need. A BofA rep tells Newsweek that "given the specific qualifying reasons for a hardship, such as to repair losses to a home, medical expenses, or to buy a principal residence, a likely contributing factor may include the current economic environment, which has seen higher rates of inflation and cost of living over the past year." (More 401(k) plans stories.)
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