401K Investors: 21% Have Taken Out A Loan or Early Withdrawal

401K Investors: 21% Have Taken Out A Loan or Early Withdrawal

One out of five or 21% of 401K investors have taken out a loan or early withdrawals from their plan over the past five years, according to the latest study conducted by Wells Fargo/ Gallup Investment and Retirement Optimism Index.

The study found that 16% of the 401K investors have taken out a loan while 9% have taken early withdrawals.

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Troubling signs and uncertainty regarding 401K plan

A majority of non-retired investors indicated that their employers offer a 401K plan.  Non-retired 401K investors showed that they are generally enthusiastic about their plan, but there are some troubling signs and uncertainty regarding the investment vehicle, according to the study.

A 401K plans is a long-term savings and it is not designed for investors to make early withdrawals. The study indicated that 55% stated that they understand the tax consequences of an early withdrawal “extremely well.’

Forty percent (40%) said they understand the consequences of an early withdrawal from their 401K plan “somewhat well” while 5% said “not very well” or “not at all.”

A majority of 401K investors are actively involved in their plan

The study found that almost 90% of non-retired investors participate in in a 401K plan if their employers are offering it. Their response shows that 401K plans are still a popular investment option among American workers.

Ninety six percent of the 401K investors actively contribute to their plans while 93% said they evaluated the performance of their plans over the past year.

The study found that only 5% of the 401K investors said they reduced of stopped their contributions to their plan.

“Americans with $10,000 or more in investments are theoretically in a far better position than those with less or with nothing invested to get along without taking on debt,” according to the study.

Gallup analyst Art Swift suggested that the early withdrawals of investors from their 401K plan “may be attributable to Americans’ putting less in liquid savings at a time of low interest rates.”  He added that investors probably decided to maximize their investment in stock-based funds that serve as backbone for most 401K plans.

“At a time when the U.S. savings rate is on the lower side of the historical range, investors with the capacity to save may need more guidance about how to save to avoid costly emergency measures, or having to take out loans or engage in early withdrawals, “ wrote Swift.

The latest Wells Fargo/Gallup Investor and Retirement Optimism Index was based on an a telephone interview with 1,009 adults in the United States with $10,000 or more in investable assets, The study was conducted on November 14-23, 2014.

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