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More People Using 401(K) Funds As Piggy Banks

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  • More People Using 401(K) Funds As Piggy Banks

    June 7, 2011

    Even though the economy has begun to demonstrate occasional signs of life, many Americans are still feeling the sting of those darkest days. Millions of homeowners are struggling to pay mortgages they can't afford and those that have walked away from underwater loans now have battle-scarred credit reports. So in order to stay afloat, more consumers are taking loans from their own retirement savings.

    According to a report in the Wall Street Journal, the companies that run 401(k) programs are seeing double-digit increases in the amount of loans being taken out against folks' own retirement funds. Vanguard Group says loans are up 14%, T. Rowe Price reports a jump of 11%. And overall, nearly one out of three people with 401(k) plans have outstanding loans.

    Why are people so eager to crack open their 401(k)s? They're quick — you can usually get the money in about a week — and cheap to process. They also require no credit check.

    But while these loans are a temptation, especially when you're strapped for cash, you are taking a big risk. If you suddenly lose your job, you've only got 60 days to pay that loan back in full. If you don't, it's counted as an early withdrawal, which means you're also saddled with income taxes and penalties.

    As we reported last month, a pair of Senators have proposed legislation that would make it more difficult to take out a loan against your 401(k). On the other side of the spectrum, it would give people longer to pay back the loan after they lose their job.

    "While having access to a loan in an emergency is an important feature for many participants, a 401(k) savings account should not be used as a piggy bank," explained bill co-author Senator Herb Kohl of Wisconsin.

    In related news, the Wall Street Journal also reports on a new survey showing that more than half of Americans between the ages of 45 and 59 have not even tried to calculate how much money they will need when (and if) they eventually retire.

    http://consumerist.com/2011/06/more-...ggy-banks.html
    Filed/discharged/closed Chapter 7 in 2010!

  • #2
    My wife and I both used our 401(k)'s as "piggybanks". Looks like we weren't the only ones.
    Filed Chapter 7 July 2010
    Attended 341 September 2010
    Discharged November 2010 Closed November 2010

    Comment


    • #3
      Me too - sure - 401k's SHOULD not be used as a piggy bank, and while I think Levin has the best intentions, the small cadre of elites simply does not GET the situation with actual real people in the real world.

      Comment


      • #4
        On the contrary, I think 401ks are an excellent judgment-proof creditor-proof piggy bank :-)
        filed chapter 13..confirmed...converted to chapter 7...DISCHARGED!

        Comment


        • #5
          ROTH IRA's can be used as judgment proof savings as well. What most don't realize is that you can withdraw after five years of each deposit tax free. Its better than leaving in a unprotected checking/saving drawing less than one percent interest.

          Comment


          • #6
            Originally posted by IamOld View Post
            Me too - sure - 401k's SHOULD not be used as a piggy bank, and while I think Levin has the best intentions, the small cadre of elites simply does not GET the situation with actual real people in the real world.
            I think they do. Almost all can save for retirement if they had discipline. I am astounded when I see others I know who claim poverty when saving for retirement when they have $100 plus cable, $100-$250 smart phone individual/family plans, $100 plus for eating out and not being diligent for grocery shopping. There is lots of waste to wring out.

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            • #7
              I plan on taking out a 401k loan for 13,000 to pay off our credit cards. Capital one is charging us 29% which comes to $100.00 a month finance charges on a $5000.00 balance. Our other card form Bank Of America is only charging 15% on $9400.00. The finance charges per month on that card are also $100.00. I will be paying myself back roughly 6% on my loan over 4 years. I think it's a good idea. Tell me if I'm wrong.
              filed 10/5/09
              341 11/5/09 score 450
              discharged 1/5/2010 score 550

              Comment


              • #8
                I am forever grateful to this forum. I was all set to raid my 401k to pay my cc's. Then I found you guys. Saved my butt from living in a box down the road a coupla years. Didn't realize I had options.
                Have I said THANK YOU??

                Keep On Smilin'

                Comment


                • #9
                  Originally posted by merlotwaytogo View Post
                  I plan on taking out a 401k loan for 13,000 to pay off our credit cards. Capital one is charging us 29% which comes to $100.00 a month finance charges on a $5000.00 balance. Our other card form Bank Of America is only charging 15% on $9400.00. The finance charges per month on that card are also $100.00. I will be paying myself back roughly 6% on my loan over 4 years. I think it's a good idea. Tell me if I'm wrong.
                  In your situation, taking the 401k loan may be a better option than trying to pay of the cc's at those rates. The way the market has been, your 401k probably won't make more than 6% anyway. But, remember that if you lose or leave your job, the 401k loan will probably become due. If you don't have funds to pay it off, a distribution will be made to pay it off and you will have to pay early withdrawal penalties and income taxes on the amount distributed.

                  I am very concerned that you have built up so much cc debt less than 2 years after your discharge. Please stop using credit cards right now!!!!! You need to live within your means. Your 401k should not be a safety net for when your debt gets out of hand.
                  LadyInTheRed is in the black!
                  Filed Chap 13 April 2010. Discharged May 2015.
                  $143,000 in debt discharged for $36,500, including attorneys fees. Money well spent!

                  Comment


                  • #10
                    You're right about the debt. Don't worry. It's all my husband's old debt. He didn't file with me because he didn't want his credit score to suffer. Stupid move on his part. He regrets it, we could have been debt free. Thanks for your advice.
                    filed 10/5/09
                    341 11/5/09 score 450
                    discharged 1/5/2010 score 550

                    Comment


                    • #11
                      I've seen some analyses that show it may often be cheaper to take a loan from "yourself," than pay high interest rates, fess, etc for a loan from a bank.

                      What I would like to do is take a loan against my social security. I started paying into SS in 1969. The amount that has been paid into my social security (me and employer) is nearly 2 1/2 times what has been paid into my pensions and other optional retirement accounts over the past 30 years. It is stunning how much I have paid in. Contrary to what I was told as a younger many of us baby boomed will probably never receive as much in SS than we paid in. If people really believe I will receive more than I paid in, then let me either take a loan against the entire amount paid in, or let me cash out in one lump sum all the money I have paid in. Ha, Ha, that will not happen.

                      Comment


                      • #12
                        I took out a 50K loan against my 401K to pay of CC debt before I was smart enough to relize i needed to file BK. i had to file anyway. so now I pay myself back $800 a month, and I really need that money in my monthly budget. 1 1/2 years to go and i count every day
                        Stopped Paying CC's 2/2009. Retained Attorney 1/10/2010 Filed 1/23/2010. Discharged 5/19/10 $187K CC, $240K 2nd,$417K 1st, No asset Ch-7

                        Comment


                        • #13
                          Originally posted by LadyInTheRed View Post
                          .........
                          I am very concerned that you have built up so much cc debt less than 2 years after your discharge. Please stop using credit cards right now!!!!! You need to live within your means. Your 401k should not be a safety net for when your debt gets out of hand.
                          Lady, you were being nice. $13K in credit card debt less than 2 years after discharge???? It is possible there is a good explanation -- not likely. This person needs to DESTROY the credit cards. Absent some incredible explanation they are incapable of having credit. No benefit to sugar coating reality.

                          Comment


                          • #14
                            Originally posted by treehugger1 View Post
                            If people really believe I will receive more than I paid in, then let me either take a loan against the entire amount paid in, or let me cash out in one lump sum all the money I have paid in. Ha, Ha, that will not happen.
                            I'm so on that same line to cash out my SS, treehugger1, right behind you...

                            One can always dream...

                            Good luck to us all.
                            No person in their right mind files a Ch. 13 with lien strip pro se. I have.Therefore, please consider me insane and clinically certifiable when reading my posts, and DO NOT take them as legal advice of any kind.Thank you.

                            Comment

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