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Log inUsing Nest Eggs Before Maturity
Using Nest Eggs Before Maturity
by Outspoken on Tue Sep 02, 2008 7:42 pm
Using Nest Eggs Before Maturity
Despite Penalties, More Workers Are Borrowing From 401(k) Plans
By Nancy Trejos
Washington Post Staff Writer
Six months ago, Ivan Sanchez was optimistic about his future. He had recently earned a bachelor's degree in business management and was writing a book about growing up among gangs and guns in the Bronx.
Then he was threatened by something else: a credit card bill, student and car loan debt, higher gas bills and rising rent. With two high school age children in need of clothing and school supplies and a toddler in need of much more, it didn't take very long for Sanchez's optimism to fade. That's when he decided to do what any financial planner would advise against: He dipped into his 401(k) retirement plan.
"There's no other way I could do it," said Sanchez, a 35-year-old Virginia Beach resident.
Hard economic times are driving some people to take actions that could jeopardize their futures. With home equity lines of credit and other types of loans harder to get, employees are increasingly raiding their retirement plans to take care of immediate needs such as paying down debt and medical bills, staving off foreclosure, or simply covering higher food and fuel prices.
"People are overextended in their personal financial lives and are looking for any way to find money to help them weather the storm they are going through right now," said Andrew McIlhenny, executive vice president and co-funder of Firstrust Financial Resources, a wealth management firm in Philadelphia.
There are two ways people tap into their nest eggs. They can take hardship withdrawals, which require proof of a severe financial need. Or they can get a loan, which they have to pay back, usually within five years. Not all employers will permit either one, but those who do impose different rules and fees. One thing is the same, however: Taking a withdrawal or loan can have a long-term negative impact, advisers and plan providers said.
The pickup in withdrawals is a worrisome trend because 401(k) plans are replacing employer-sponsored pension plans and Social Security as the main source of retirement savings for many Americans, financial advisers and plan administrators said. Over the past two decades, as participation in 401(k) plans has quadrupled, politicians and employers have urged Americans to treat them as sacred. Yet some banks have started offering debit cards linked to accounts with money from 401(k) loans.
http://www.washingtonpost.com/wp-dyn/content/article/2008/09/01/AR2008090102999.html?wpisrc=newsletter
Despite Penalties, More Workers Are Borrowing From 401(k) Plans
By Nancy Trejos
Washington Post Staff Writer
Six months ago, Ivan Sanchez was optimistic about his future. He had recently earned a bachelor's degree in business management and was writing a book about growing up among gangs and guns in the Bronx.
Then he was threatened by something else: a credit card bill, student and car loan debt, higher gas bills and rising rent. With two high school age children in need of clothing and school supplies and a toddler in need of much more, it didn't take very long for Sanchez's optimism to fade. That's when he decided to do what any financial planner would advise against: He dipped into his 401(k) retirement plan.
"There's no other way I could do it," said Sanchez, a 35-year-old Virginia Beach resident.
Hard economic times are driving some people to take actions that could jeopardize their futures. With home equity lines of credit and other types of loans harder to get, employees are increasingly raiding their retirement plans to take care of immediate needs such as paying down debt and medical bills, staving off foreclosure, or simply covering higher food and fuel prices.
"People are overextended in their personal financial lives and are looking for any way to find money to help them weather the storm they are going through right now," said Andrew McIlhenny, executive vice president and co-funder of Firstrust Financial Resources, a wealth management firm in Philadelphia.
There are two ways people tap into their nest eggs. They can take hardship withdrawals, which require proof of a severe financial need. Or they can get a loan, which they have to pay back, usually within five years. Not all employers will permit either one, but those who do impose different rules and fees. One thing is the same, however: Taking a withdrawal or loan can have a long-term negative impact, advisers and plan providers said.
The pickup in withdrawals is a worrisome trend because 401(k) plans are replacing employer-sponsored pension plans and Social Security as the main source of retirement savings for many Americans, financial advisers and plan administrators said. Over the past two decades, as participation in 401(k) plans has quadrupled, politicians and employers have urged Americans to treat them as sacred. Yet some banks have started offering debit cards linked to accounts with money from 401(k) loans.
http://www.washingtonpost.com/wp-dyn/content/article/2008/09/01/AR2008090102999.html?wpisrc=newsletter
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Plato (427-347 BC)
Plato (427-347 BC)
