Asking For More Than 401(k)s, page 1

Asking For More Than 401(k)s

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The NY Times ran an editorial on Friday lamenting how employees are borrowing more and more from their 401(k)s to pay for medical bills, mortgage payments, and stints of unemployment. The Times reports that this trend is exacerbated by the "401(k) debit card," which holders use like any other debit card, except the money comes as loans from their 401(k)s rather than as deductions from a checking account.

In tough times like these offering struggling families ‘extra cash’ sounds like a good idea, but at what cost? Dipping into your retirement fund is one thing but the fees and charges can be phenomenal.
Many people will take the ‘loans’ with all good intentions of repaying them but will no doubt find it hard and will end up with no retirement fund at all.
This is nothing more than government sanctioned loan sharking.

And if you do not repay the ‘loan’ in good time, look out!

Eventually, the borrower repays the loan's principal and much of the interest to his 401(k) account. (The remaining portion of the interest goes to Reserve Solutions.)

If the borrower misses payments for three consecutive months - or doesn't repay the loan generally within five years - the loan could be considered a withdrawal from the retirement account, incurring income taxes and a penalty, Gannon explains.

Even In Scrambled Economy, Don't Crack Your Nest Egg

This is a scheme the Mr. Bush is trying to enforce on people in order to boost the economy by encouraging people to spend more. But at what cost?

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