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401(k) Loans and Hardship Withdrawals Rise at Alarming Rate
A New Horizon Credit Counseling Advises on How to Avoid Jeopardizing Retirement Accounts
Fort Lauderdale, Fla. – Last year Americans 401(k) retirement accounts experienced a huge reduction in value due to falling financial markets. These very same retirement accounts are now facing another attack of sorts; this time from within. American workers are initiating loans or hardship withdrawals from their 401(k) retirement savings accounts at an unprecedented rate. A New Horizon Credit Counseling Services, Inc., a nonprofit credit counseling firm, has been advising its clients and the public on ways to avoid jeopardizing their future retirement by making wiser choices.
Steven Stark, COO of A New Horizon Credit Counseling, comments that “this trend of borrowing against, or withdrawing funds from retirement assets for critical living expenses is alarming and may be avoided with proper financial management, credit counseling and, if suitable, a structured debt management plan”.
According to reports on 401(k) plans that it administers, Fidelity Investments, found that, loans initiated over the 12 months ending June 30, 2010, grew from 9 to 11 percent of total active participants; and hardship withdrawals, grew from 2 to 2.2 percent of active participants. Mr. Stark further stated “while loans and hardship withdrawal can sometimes be unavoidable, it is critical that the employer and plan administrators make the participants aware of the consequences of their action that will result in significant penalties, which could be up to 40%, once state and federal taxes are added to the 10% penalty, and have long term impact on their retirement options”.
According to Stark, there are steps consumers can take to avoid these unintended consequences. Here are some tips to follow:
- Consult a reputable credit counseling agency that will thoroughly review your income and expenses and formulate a budget to avoid the need to borrow from your 401(k).
- Take advantage of a debt management plan if the credit counseling company offers one; this will free up funds so you may be able to avoid tapping your retirement account.
@anewhorizoncc
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A New Horizon Credit Counseling Services is a nonprofit credit counseling organization that has been helping consumers since 1978. For more information about their programs, contact 1-800-556-1548. They can also be found on the web at http://www.anewhorizon.org, or reached via email at slieberman@anewhorizon.org
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