NEW YORK–An anticipated surge in withdrawals from retirement accounts at year-end never materialized, with the number of people taking withdrawals actually modest during 2020.
Experts are saying that while the pandemic has affected the income of many, those most affected are not likely to have retirement accounts.
In March of 2020 Congress OK’d rules that allowed people to withdraw as much as $100,000 from individual retirement accounts, such as 401(k)-type plans, by Dec. 31 without the 10% early-withdrawal penalty that generally applies under age 59½.
The latest data indicate that not many account-holders took advantage of the offer.
In 2020, Fidelity Investments, the nation’s largest 401(k) provider, said 1.6 million people, or 6.3% of eligible participants in plans it administers, took some money out, the New York Times reported.
“Fidelity and many other 401(k) record-keepers reported that although the number of people taking COVID-19-related withdrawals continued to grow in the final three months of 2020, the rate of increase was modest and largely in line with what occurred in earlier months, even as the option to take a penalty-free withdrawal ended on Dec. 31,” the Times reported. “An additional 1% of 401(k) participants at Fidelity took what is known as a hardship distribution in 2020. These allow withdrawals for reasons including buying a home, preventing foreclosure or paying medical bills. In a typical year, about 2% take a hardship distribution.”
Similarly, Vanguard Group reported 5.7% of eligible participants took penalty-free withdrawals because of the crisis and 1.7% did so on hardship grounds in 2020, while T. Rowe Price Group said 8% of eligible people in plans it administers with assets over $25 million took at least one withdrawal because of the pandemic. About 6% of people with 401(k) accounts that Alight Solutions LLC administers tapped their savings, the Times stated.
‘Good News’
“Given how many people have been impacted by COVID, 6% can be viewed as good news,” Rob Austin, director of research at Alight, told the Times, adding that with unemployment rates high last spring, he said, some in the industry initially expected as many as half of 401(k) participants could raid their accounts.
The main reason withdrawal rates are lower than expected is that the unemployment crisis has disproportionately fallen on lower-income workers, who “are least likely to have a 401(k) plan,” Brigitte Madrian, an economist at Brigham Young University, told the Times.
The Times report noted that overall, approximately one-third of private sector workers don’t have access to a workplace retirement-savings plan, with fast food, retail and gig economy workers most often left out of any such plans.