Raiding 401Ks costly for thousands of Americans

By: NBC News Email
By: NBC News Email

The number of people participating in 401k retirement plans reached an all-time high last year.

Research from Fidelity Investments also reflects a record in average balance: nearly $76 thousand.

"About 8 percent of their paycheck goes into their 401k. Many employers match that. So that's an additional 4 percent," said Kathleen Murphy, President of Fidelity Personal Investing.

But another study by online financial advice firm Hellowallet exposes a growing downside.

One in four Americans have raided their 401k to pay monthly bills.

Some, whose unemployment is measured in years, not months, say they had no other choice.

Fidelity's Kathleen Murphy says it can be expensive.

"Because in addition to taking the money out, you pay tax penalties on that withdrawn money," said Murphy.

Come April 15, those who raided their accounts last year will find out how expensive.

Most personal finance experts say it should be done only as a last resort.

Murphy says this is all the more reason to get an early start at 401k contributions.

"The compounding effect of saving when you're in your 20s and the payoff that will have in your 60s when you're ready to retire is phenomenal," said Murphy.

But a phenomenal challenge is getting Americans to stop early withdrawal of some $70 billion from their 401ks every year.

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