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AARP warns against early 401(k) withdrawals that can cut payouts 25% to 35%
The penalty plus ordinary income taxes can mean a $20,000 withdrawal nets only about $12,000 to $14,000 after taxes and penalties, and reported hardship withdrawals rose in 2025.
AARP is warning Americans about the cost of taking money out of a 401(k) before age 59-and-a-half, saying early withdrawals can erase a meaningful share of the amount pulled from the account, according to Yahoo Finance.
The outlet cited that withdrawals before 59-and-a-half may trigger ordinary income taxes and a 10% penalty, which AARP says could result in losing 25% to 35% of what is withdrawn, and that a $20,000 withdrawal might net only $12,000 to $14,000 after taxes and penalties.
Yahoo Finance also pointed to evidence that pressure to access retirement funds is increasing, including rising living costs, and said Vanguard’s How America Saves 2026 reported an uptick in hardship withdrawals.
The article noted that about 6% of 401(k) plan participants took early withdrawals due to hardship in 2025, up from 5% in 2024, and that Fidelity’s Building Financial Futures: Q4 2025 report said hardship withdrawals affected 2.5% of workers in 2025.