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Many savers worried they'd need to dip into their retirement savings to make ends meet over the past year. Yet a new report from Vanguard shows few of the firm's plan participants did so, despite an effort by the federal government to lower the barriers to taking a distribution.

The CARES Act — a $2 trillion effort by the federal government to help offset the pandemic-induced recession — contained a provision making it easier to withdraw or borrow money from some retirement accounts in 2020. It also loosened the tax penalties and even gives savers the option to pay a withdrawal back.

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How many 401(k) participants took a hardship withdrawal during COVID-19?

Vanguard’s latest How America Saves report found that 7.4% of Vanguard participants took a withdrawal in 2020 from their defined contribution plans (that means 401(k)s and their cousins, 403(b)s, which are available to many public employees and some nonprofit workers). They did so for a mix of reasons, some coronavirus-related, others due to other sources of hardship, and some for non-hardship reasons. Some 5.7% took a special CARES Act distribution.

Just a year earlier, less than 4% of Vanguard's plan participants took a distribution, most of which went towards hardship withdrawals.

So who took a withdrawal in 2020? The median plan participant was 42 years old, making about $61,000 per year, Vanguard found. Their withdrawal amount? Around $13,000 — not insignificant.

But the number of savers who took money out of a retirement account was lower than expected, says David Stinnett, principal and head of Strategic Retirement Consulting at Vanguard. He and his colleagues were “surprised, relieved” when they saw the percentage was relatively low. The CARES Act also provided for a special loan option which was used even less frequently.

Some surveys found that number was higher — the Transamerica Center for Retirement Studies reported 22% of workers in defined contribution plans had taken a withdrawal as a result of the pandemic when asked in October of last year. Fidelity found 6.3% of their 403(b) and 401(k) participants took a CARES Act distribution. But the consensus is withdrawals weren’t much more common in 2020 than they were in previous years.

One reason may not be cause for celebration, though: perhaps those who most needed the money didn't have a 401(k) or similar account to pull from. The coronavirus pandemic and the accompanying recession were toughest on Americans who had the least to begin with, and workers in hard-hit industries like hospitality are less likely to have a 401(k) than professionals who could work from home.

In fact, retirement savings shot up overall for Americans. Median account balances rose 30% last year, Vanguard says, attributing the rise to "market dynamics and a steady rate of contributions." And the number of people with $1 million or more in their retirement accounts doubled during the pandemic.

It's also possible that stimulus checks helped buoy household finances last year, and this year still-struggling Americans may be more likely to withdraw from their retirement accounts. Earlier this year, nearly a third of of non-retired Americans said they plan to tap their retirement savings this year to buy necessities or pay down debt, according to a survey from Money and Morning Consult.

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