401(k) funds aren't personal loans states United States Senate

The Senate is attempting to keep individuals from using their 401(k) money as a source of unsecured loans. The law would put a limit on how several times retirement accounts can be borrowed from.

Reason for retirement account

Business Week states that a permanent cap on the number of times a person can take money out of an IRA fund for instance a 401(k) might become reality with a bill the Senate is looking at. Individuals sometimes will have a shortfall and rely on a 401(k) account to get them out of the issue, hurting their future. This is why Senators Mike Enzi (R-WY) and Herb Kohl (D-WI) are hoping to get the bill passed. A retirement account isn’t “a piggy bank,” according to Senator Kohl. The “SEAL 401(k) Savings Act” is the name of the bill.

Of those with accounts, around 28 percent borrow

Aon Corp did a study and found that by the end of 2010, about 28 percent of individuals with a retirement account for instance a 401(k) borrowed, on average $7,860, from the account. Aon Corp also found that of the people who took out installment loans from their retirement funds, 58 percent had at least two outstanding loans. Defaulting was common among 70 percent of borrowers too. This was only if they borrowed from their retirement. Fidelity Investments, according to USA Today, found that about 22.5 percent of 401(k) account holders with Fidelity had a loan balance outstanding at the end of 2010. Between one fifth and one 3rd of people had to use their 401(k) accounts or other retirement accounts for an emergency at some time.

Issue with retirement

Several individuals are having a hard time figuring out how to one day retire. Social Security, Medicare and Medicaid are typically pillars of security for retirees because portions of their paydays have been going toward these programs for decades. However, it is becoming apparent that these entitlement programs may not be the guarantee they once were. Social Security is on track to becoming insolvent, and the Social Security Administration would need to raise $6.5 trillion to become totally solvent again, according to CNN. The Social Security payroll taxes right now aren’t enough to help the dying Social Security Trust Fund. It should be depleted in 25 years or so.

Citations

Business Week

businessweek.com/news/2011-05-18/senate-bill-would-limit-use-of-401-k-s-as-rainy-day-funds.html

USA Today

usatoday.com/money/perfi/retirement/2011-05-11-401k-retiement-accounts-up_n.htm

CNN

money.cnn.com/2011/05/18/pf/expert/expert-social-security.moneymag/?section=money_latest