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Avoid urge to tap into retirement savings accountsPosted by Randy on: 2005-09-27 07:19:40 in category:
Retirement Headlines [ Print | Permalink / 0 Comment(s) ] Avoid urge to tap into retirement savings accounts Eileen Alt Powell Associated Press NEW YORK -- People hard up for cash -- whether they've been set back by a job loss or a disaster like Hurricane Katrina -- may be tempted to tap their 401(k) accounts and other company-sponsored retirement plans. But this should be a last resort, not only because they face possible penalties but also because it undercuts long-term security. "This money is going to determine how you live in the long run," said David Wray, president of the Profit Sharing/401(k) Council of America, based in Chicago. "So if you can deal with short-term emergencies out of short-term resources, that's a better planning approach." Better options for raising cash in an emergency include borrowing from relatives and friends, tapping a home equity line of credit or seeking a personal loan from a bank or credit union, experts say. Company 401(k)s and other retirement accounts are inviting targets because in many cases they are a worker's biggest pool of savings, and most company plans allow for loans or "hardship" withdrawals. But because these accounts are funded with pretax income and grow tax-deferred, there are penalties if they're tapped early -- before a worker turns 59 1/2. Wray said that if a retirement account is a desperate family's only possible source of emergency cash, it first should consider borrowing, rather than withdrawing, from the account. "You can borrow up to half the account balance or $50,000, whichever is less," Wray said. "But if you borrow, you have to repay, typically through a payroll deduction." Those payments are due at least quarterly, and they include interest, generally set at a percentage point over the prime rate, which now is 6.5 percent. The interest goes back into the account. If the worker terminates before the loan is repaid, it's declared in default, and the worker will be required to pay federal and state income taxes on the unpaid balance plus a 10 percent penalty. Experts suggest families work on two fronts -- raising money and calling on creditors to defer payments on bills. Piling debt on credit cards should be a last resort. Homepage Other community sites http://www.business-business.biz Please support are sponsors. To design you custom retirement plan. http://www.retirement-plan.us For planing a IRA rollovers. http://www.ira-rollover.us Professional asset allocation and the wonders it can do. http://www.asset-allocation.us Professional money management: National ranked performance. http://www.roth-ira.us Managers selected to fit your needs. http://www.money-managers.us |
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