Posted on 03/01/2008 8:41:40 AM PST by Toddsterpatriot
Financially stretched workers are increasingly breaking into their retirement accounts to get cash.
Over the past couple of decades, the 401(k) account and its brethren have become the main retirement savings vehicles for millions of Americans. But as the credit crunch and declining home values limit many types of consumer loans, a growing number of workers are tapping into these accounts as if they were piggy banks.
Eighteen percent of workers had a loan outstanding from their retirement plan in 2007, up from 11% in 2006, according to a survey to be released today by the Transamerica Center for Retirement Studies, a nonprofit corporation funded by Aegon NV's Transamerica Life Insurance Co.
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Some workers raid their 401(k)s without fully understanding the consequences. Joanna Bare, 40 years old, of Bethesda, Md., took a $35,000 loan from her 401(k) in 2005 to cover a huge tax bill resulting from the sale of stock she had held since she was a child. But she didn't realize that she would need to repay the loan with aftertax dollars even though the 401(k) account was funded with pretax savings, meaning the loan repayments would take a bigger bite out of her paycheck than she anticipated.
(Excerpt) Read more at online.wsj.com ...
Ping!
Exactly! These people will be the ones crying for a handout in their retirement years.
There should be no fees for proven financial hardship. That is insulting. It’s your money. Pay the tax, that’s all.
If I join a 401(k) plan under a certain set of rules/regulations, I shouldn't be complaining X years later that I don't like terms of that plan.
The money is in the house and cars. Both much better investments than a retirement account.
It should also be mentioned that while it's true the loan has to be paid back with after-tax dollars, it's also true that the borrower will be paying HERSELF back all of that interest . . . and the long-term compounding of the money she pays back to herself will be tax-deferred.
LOL!
I submit that most cars are a very poor investment, since their value tends to go down over time.
Too early for sarcasm?
That would be news to many. A car has so many uses. You could drive yourself to the poorhouse on your last tank of gasoline.
I would if I lost my job, because it would allow me to pay off my debts and live until I got back on my feet, but I also have an IRA.
Yep. About 10 seconds after I posted it hit me (DOH!). I thought a few seconds about a follow-up, but I figured I’d take it like a man.
Coffee first, hit post second, LOL!
Was thinking the same thing. $35k tax bill from capital gains is a large sum of money.
It's your money. It's tax-deferred. If you cash out, you should pay the taxes. That's it. It is insulting to someone who lost their job and/or face serious financial/medical difficulty to pay a contrived fee for no purpose except to feed government bureaucrats.
More plans are adding fees on loans or limiting the number of loans that participants can take, aiming to deter excessive borrowing, Ms. Hess says. Nearly 80% of plans charged loan-origination fees in 2007, up from 63% in 2001, and the average fee was $55, according to Hewitt.
The plan charges the fee, not the government.
What happened to that money?
++++++++++++++
Probably upgraded to a $700,000 home, bought a new Mercedes and some jewelry.
She was putting $900 a month into the 401(k) before she took out the loan, so she probably wasn't a total idiot, but she must have done something stupid to have to take out the loan. Maybe Bethesda had a hot RE market and she overbought?
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