401(k)s tapped to save homes

[salin]

Source: USA Today

401(k)s tapped to save homes

By Christine Dugas, USA TODAY
Struggling to save their homes from foreclosure, more Americans are raiding their 401(k) retirement accounts to pay their bills — and getting slammed with taxes and penalties in the process, according to retirement plan administrators.

Rather than borrow money from their 401(k) accounts, which would have to be paid back, a growing number of beleaguered families have been cashing out, plan administrators say.

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The main reason? The need to stave off foreclosure or eviction.

Consider Tamara Campbell, who raided her 401(k) after her husband was laid off from his job as an occupational technician, and they fell behind on their mortgage for several months. "If I hadn't done that, we would have been foreclosed on last year," says Campbell, who lives in a Denver suburb.





Read more: http://www.usatoday.com/money/perfi/retirement/2008-03-10-401k-withdrawals_N.htm?csp=34

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Yet another long-term problem to the combiniation of a slowing economy (unemployment and/or stagnant wages and rising costs of living) and the housing/forclosure crisis.

[SoCalDem]

1. All part of the plan..

You didn't think Boomers and 40-somethings would be allowed to actually USE that 401-k money to retire on, did you?? or equity in a house?

The rich folks have to have it ALL, and they cleverly set up little scams to soak up our hard earned money and before we can actually USE it, there always some carefully timed calamity that claims it all..

That was the pesky thing about defined benefit pensions, as long as the companies were stable (and most HAD been for a LONG time), they actually had to honor them and send out checks..and those checks kept coming as long as you lived..

401-ks were brilliant..(like the HMO plans).. Company gets YOU to put part of your money every pay period into the stock market and they will match a minuscule percentage (not as costly as maintaining a pension fund), and YOU take all the risk...and as your pay goes up (if you are lucky), so does your contribution..and your risk.. and when your money is gone? Game Over

This is the "other shoe"...

[Stuckinthebush]

2. Yes, cashing out will hit you hard

but some employer sponsored retirement plans will allow you to take a loan out on the plan without penalty. Those loans are usually pegged to the bond rate and are in terms of 1 to 5 years (up to 10 if you use it to buy a home). If you have major credit card debt at 25% or more, then it may make sense to take a 6% loan that has a definite term and consolidate that debt instead of cashing out.

Of course, if you default on the loan it is treated as a cash out. If you don't, then your current principal is never decreased and your plan continues like it did before the loan. This is treated as a collateralized loan.

[InkAddict]

3. That's just great unless you're in IT where gigs only last

perhaps 3-6 months, even when the contractor, sub-contractor, sub-sub contractor says the project will last 2 years (your part will last six weeks) and the H1-Bs take the money and run. Guaranteed default.