A tempting loan to yourself

If you need a loan, borrowing money from a 401(k) retirement fund seems like a no-brainer.

     After all, it's your money, deducted from you paycheck. The interest you pay goes back into your retirement fund. And no stone-faced banker is holding a bunch of loan approval hoops to jump through.

     So when it came time to buy a house, or to pay for a kid's wedding or tuition, many people went to their 401(k)s.

     Now those easy decisions are starting to backfire, financial counselors say. Job cuts have made it harder for many people to repay. If they default, they're on the hook for an IRS penalty equal to 10 percent of the unpaid amount. Plus, the back taxes on the amount come due.

     The ease of tapping into retirement funds is coming under fire. A measure introduced in the U.S. Senate on Wednesday would ban debit cards that are issued with some 401(k) loans. A Washington think tank says that rising 401(k) borrowing will hurt retirees financially down the road.

     In the Buffalo area, where good-paying industrial jobs have been disappearing, planners say the 401(k) loan crunch is already a problem.

-- Fred O. Williams

Comments

[Texas Kid]

Tapping into a 401(k) is no different than the federal government tapping into our Social security for every program they want to entice voters to keep them in power. Fols are doing just what they see thier leaders doing, borrowing against tomorrow's future. Buffalo and NY have done it for years with the cushy pension plans and benefits offerred to government workers. Now its getting crunch time and the money and tax paying base isn't there anymore. The 401(K) mess is just an example of people not planning and understanding to live within their means. They only imitate their leaders, especially in NY and Buffalo.