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Few Are Tapping Their 401(k)s Under COVID Exception

Americans given chance to raid funds without penalty, but not many have opted for it
By John Johnson,  Newser Staff
Posted Nov 5, 2020 11:17 AM CST

(Newser) – Earlier this year, Congress gave Americans the chance to raid their own 401(k) funds without penalty amid the pandemic. But the Wall Street Journal reports that few people have actually done so. The nation's biggest 401(k) provider, Fidelity Investments, says 4.6% of people have taken advantage of the exception under the CARES Act, while Vanguard has a similar figure of 4.5%. Withdrawal rates are "much less dire than we were thinking back in April,” says Vanguard's Dave Stinnett. But this isn't necessarily a sign that COVID's economic impact has been less severe than anticipated: The Journal points out that the very people who would most need emergency funds—low-income earners—are the same people least likely to have a 401(k) in the first place.

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Under the rule, people can pull up to $100,000 from their 401(k)s or IRAs without incurring the usual 10% penalty for such withdrawals before age 59½. Coronavirus cases are currently increasing at a record pace, and the number of withdrawals could increase in the near future. As CNBC notes, people have until the end of the year to take advantage. "It always depends on an individual's particular facts, but we suggest people shouldn't do this unless they have no other choice," Mark Luscombe of Wolters Kluwer Tax and Accounting tells CNBC, which digs into the particulars of the law. (Read more 401k stories.)

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