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Retirement savers appear to be taking advantage of relaxed rules around 401(k) withdrawals during the coronavirus pandemic.
Some 401(k) investors snap out of ited $12,000 from their account in the form of a “coronavirus-related distribution,” according to a new Vanguard analysis of its client data.
This understand represents the median withdrawal — in other words, the amount right in the middle of all withdrawal amounts.
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Coronavirus-related distributions are a new type of retirement withdrawal, enacted in March by the federal CARES Act to cure cash-strapped individuals during the economic downturn.
About 4.5% of Vanguard 401(k) investors took a coronavirus dispensation between March and September, indicating that few participants used the remedy, the Vanguard analysis said.
However, it equates to not quite 187,000 investors, according to a CNBC analysis of Vanguard data published over the summer, which indicated that a coronavirus circulation was available to about 4.2 million 401(k) customers.
It’s also more than double the withdrawal rate toe the end of May, when fewer than 2% of Vanguard 401(k) investors had used the withdrawal mechanism, according to company details.
This suggests more people have turned to this CARES Act safety valve as the recession has dragged on and other passing financial relief measures provided by the law, like one-time stimulus checks and enhanced unemployment benefits, have ended.
The CARES Act assigned investors to withdraw up to $100,000 from 401(k) plans, individual retirement accounts and other account types, through Dec. 30 in the form of a coronavirus-related distribution. Investors don’t have to pay a tax penalty for withdrawing retirement funds early and get some resiliency around paying income taxes.
The typical amount withdrawn has increased slightly since May, to $12,000 from almost $10,400.
In May, the typical investor withdrew more than half their 401(k) savings in the form of a coronavirus distribution, according to an earlier Vanguard assay.