New Research on Early 401(k) Withdrawals Sparks Concern

There may be a new take on how to view retirement plan leakage and its effect on retirement savings in light of a recent paper from a collection of Harvard, Yale, and Vanguard researchers. Titled “Does 401(k) Loan Repayment Crowd Out Retirement Saving? Implications for Plan Design,” the authors note recent legislative changes under SECURE 2.0, including the emergency withdrawal provision which allows participants to take annual penalty-free distributions of up to $1,000. They argue such provisions “are likely to increase early withdrawals in coming years. As more participants use 401(k) assets to fund emergency spending needs, it is important to understand the tradeoffs between liquidity and long-run wealth accumulation.”