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Americans were given the coronavirus option to raid their 401(k). Most didn’t.
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Despite the financial toll of the coronavirus pandemic, few American households have raided their retirement accounts to make ends meet.
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Faced with the prospect of surging unemployment and a declining economy, Congress in March passed a law that temporarily allows Americans to use their retirement money today.
But so far, there hasn't been a rush of funds out of accounts.
Fidelity Investments, the largest 401(k) provider in the country, has seen 4.6% of eligible people take some money out through Sept. 30 due to the virus. An additional 1% have taken a so-called hardship distribution that allows withdrawals for reasons including buying a home, preventing foreclosure or paying medical bills. That is compared with about 2% a year that typically take a hardship distribution.
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The withdrawal rates are "much less dire than we were thinking back in April," said Dave Stinnett, head of strategic retirement consulting at Vanguard Group, which says 4.5% of eligible people in retirement plans it administers took money out due to the crisis and 1.5% did so on hardship grounds through Sept. 30.
The main reason withdrawal rates are lower than expected is the inequalities in the workforce, economists say. Low-income workers who would be most likely to tap a 401(k) are least likely to have one.