401k For decades, as real estate values rose, Americans tapped their homes when they needed cash by refinancing their mortgages or taking out home-equity loans. Since the housing collapse of 2008, that’s often not an option. Retirement accounts have filled the void. The Internal Revenue Service in 2011 collected $5.7 billion in penalties from Americans who withdrew about $57 billion from retirement accounts before they were supposed to. Adjusted for inflation, the government collects 37 percent more money from early withdrawal penalties than it did in 2003. “They get hit with the penalty at exactly the time when they’re the most vulnerable,” says Reid Cramer, director of the Asset Building Program at the New America Foundation, which tries to improve savings for lower-income families. “So it’s a real double whammy.”

Money in tax-deferred retirement accounts can be withdrawn without penalty after age 59 1/2 and generally must be withdrawn starting after age 70 1/2. Withdrawals, at any age, are added to a taxpayer’s income and taxed at regular rates. The 10 percent penalty for 401(k) plans applies to early withdrawals, except in cases of disability and certain medical expenses. Americans who leave their jobs at or after age 55 also can escape the penalty. Withdrawals from individual retirement accounts have a broader set of exceptions to the penalty, including spending for higher education and first-time home buying.

The median size of a 401(k) is $24,400 as of March 31, with people older than 55 having $65,300, according to Fidelity Investments. The company estimates that people will need savings of eight times annual income (in their last year of work) to live comfortably in retirement. One reason retirement balances are so low is that many younger workers who switch jobs don’t bother to roll over their accounts. Younger workers ages 20 to 39 have the highest cash-out rates, with about 40 percent taking money out when they switch jobs, according to data from Fidelity.

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