When the father of two, Ivan Marusic, lost his job overnight in 2020, he panicked about how he was going to cover his mortgage.
It prompted the 35-year-old from Texas to do something he never thought he’d do: withdraw $20,000 from his 401(K). It’s a decision he’s still paying for today.
“I was really hesitant to do it because I knew it would set me back financially in the long run. But I had no other options. I had already used up my credit card and I was almost out of money,” says Marusic, a tech who has since founded the website Game Tacostold Dailymail.com
This week, a report from the Bank of America (BofA) sounded the alarm about a rise in the number of employees taking “hardships” from their 401(K)s.
About 15,950 of the company’s 401(K) plan participants withdrew funds from their accounts in the second quarter of the year. It represented a 36 percent increase over the same period in 2022.
This week, a report from Bank of America (BofA) sounded the alarm about a rise in employees taking “hardships” from their 401(K)s
The father-of-two, Ivan Marusic, pictured, told DailyMail.com that he is still paying for the hardships he took in 2020, adding: “It was a lifesaver at the time, but I know that I’ll have to pay the price for it later’
And another 75,000 earners took out a loan from their plan — meaning they’ll pay back the amount in five years.
The findings reveal just how much households have struggled amid rampant inflation – currently hovering at 3.2 percent – and rising interest rates.
Anyone who wants to dive into their 401(K) before age 59.5 has two options: they can take out a loan or take out a hardship.
With the latter, an employee can only take it if he is in ‘immediate and severe financial distress’, such as an unexpectedly high medical bill. The amount should only be what is necessary to cover this need.
They are then slapped with a 10 percent fine if they back off. There are some exceptions – for example, if it was agreed under a qualified internal relations order.
But Marusic’s story should serve as a reminder of how devastating this decision can be. As part of his withdrawal from hardship, he was forced to pay the 10 percent fine — or $2,000 — he will never see again
In addition, he must pay levies on the withdrawal, which are taxed as ordinary income.
And his retirement savings have been severely damaged, so he is now desperately trying to catch up.
He said, “It was a lifesaver at the time, but I know I’ll have to pay the price for it later. I’m still paying off the withdrawal, but I’m finally in a better financial position because I have a new job and can save for retirement again.
“I learned a valuable lesson.”
The other option for overworked employees is to take out a loan on their 401(K). That means they have to pay back everything they take out — with interest — within five years.
Loans are usually allowed up to $50,000 or half of your balance — whichever is lower.
Wealthy households have saved almost ten times more money for retirement than middle-income households, according to figures from the Government Accountability Office
Financial planner Marissa Reale told DailyMail.com, “Taking a loan is better than taking out money because at least you pay it back slowly and stay on track for retirement.
“But before that, I’d recommend getting a credit card loan with 0 percent APR first — this is a good option if your credit is good.”
“Otherwise, homeowners can always consider taking out a home equity loan — this is an option many people don’t think about.”
Experts are already concerned that Americans are not saving enough for retirement.
A landmark report this month found that wealthy households have nearly ten times more money saved for retirement than middle-income households. Analysis by the Government Accountability Office found that this gap had widened exponentially over the past two decades.
A high-income household has about $605,000 saved for their twilight years — compared to $64,300 in a middle-income home.
In 2007, these figures were $330,000 and $86,800, respectively.
In addition, only one in ten low-income households have money saved for a retirement pot – compared to one in five in 2007.
Reale said, “I think people really underestimate how much they need to have a good income for a 30-year retirement.”