Senate does not want 401(k) funds used as personal installment loan

The Senate is trying to keep people from using their 401(k) money as a source of personal loans. The new bill that is being put forth would limit how many times an individual can draw from retirement accounts before retirement.

Reason for retirement account

Business Week states that a permanent cap on the number of times an individual can take money out of an IRA fund such as a 401(k) might become reality with a bill the Senate is looking at. The reason why Senators Herb Kohl (D-WI) and Mike Enzi (R-WY) are hoping to create this limit is so that individuals don’t ruin their futures for an immediate need taken out of their 401(k) accounts. Senator Kohl is especially passionate about the bill. He said a retirement account isn’t “a piggy bank” and should not be treated as such. The “SEAL 401(k) Savings Act” is the bill. That is what it was named.

About 28 percent of people borrow from account

Aon Corp did a study and found that by the end of 2010, about 28 percent of people with a retirement account for instance a 401(k) borrowed, on average $7,860, from the account. About 58 percent of people who took personal installment loans out of their retirement funds had at least two large loans also. 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) those with accounts with Fidelity had a loan balance outstanding at the end of 2010. Between one fifth and one third of individuals had to use their 401(k) accounts or other retirement accounts for an emergency at some point.

Problem with retirement

The prospect of being able to retire one day, and to do so with confidence, is becoming more daunting for several individuals. Since parts of checks have been taken out for Social Security, Medicare and Medicaid, individuals just expect these programs to be there. These programs might not work as well as expected though. Social Security is on track to becoming insolvent, and the Social Security Administration would have to raise $6.5 trillion to become totally solvent again, according to CNN. In the next 25 years, the Social Security Trust Fund will most likely be depleted, and it cannot be fixed with the current Social Security payroll taxes.

Information from

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