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Poll: Have You Raided Your 401(k)?

roll of cash emerging from broken golden eggThere’s new data out that further shows just what a train wreck 401(k) plans are. Put plainly, do-it-yourself retirement just isn’t working for most folks.

The Washington Post this week writes about a new report that shows more than 25% of workers with retirement savings accounts like the 401(k) take money out while they’re still working to pay for living expenses.

The group most likely to tap their accounts? Workers in their 40s, according to a report from financial advisory firm HelloWallet cited in the Post story.

There are a number of reasons why raiding retirement savings is a bad idea. Here’s the No. 1 reason:

“Experts warn that when workers draw on their retirement accounts to pay current bills, they put themselves at greater risk of descending into poverty upon retirement, which would leave them dependent on government programs such as subsidized housing or food stamps. Nearly 6 million senior citizens were living in or near poverty in 2010, according to a Senate committee, a number expected to increase sharply over the coming decade after a long period of decline.”

Of course, the households most likely to withdraw or borrow from retirement savings are the ones least able to afford it.

The HelloWallet report found that 30% of households earning less than $50,000 annually had taken cash from a retirement plan early; just 12% of households earning between $100,000 and $150,000 cashed out early.

Even if taking money out early doesn’t send you into poverty, it’s still not a good idea.

If you borrow from your 401(k), you have to pay it back. And you usually have to do it within five years.

If you can’t pay it back or if you make a hardship withdrawal before you’re 59 ½, you’ll be charged a 10% early withdrawal penalty.

More importantly, the money you take out is no longer working for you, helping to ensure you have a comfortable retirement.

And yet, it’s hard to blame people for raiding their 401(k) accounts when money is tight. You may not have another option. And the economy hasn’t exactly treated many of us kindly over the last few years.

That’s why I’m curious to know, if you’ve taken money from your retirement account, for what purpose did you do so?

Take our poll below.

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Why did you borrow from your retirement account?
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View Results

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Comments (5)
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5 Existing Comments
  1. ja lo said:
    on January 17th at 03:59 pm

    any one who pulls from their 401k is committing financial sucide you are really going to regret it just ask scotty j at deposit accounts

  2. A.Bundy said:
    on January 18th at 04:20 am

    unless your company matches your contribution, why would you have a 401k in the first place? its not FDIC, and doesn’t really make you any profit unless you go with high risk options. if your company matches, then you are allowed to roll it into a traditional IRA (100% FDIC protected) with no penalties. i do it once a year when my employer sends an email about the matching. if you dont know what i am talking about, you shouldn’t have a 401k in the first place.

  3. richard face said:
    on January 19th at 02:23 pm

    i agree with al bundy but the biggest putz is paoli at deposit accounts

  4. richard face said:
    on January 19th at 02:26 pm

    why does no one comment on this site it is most informative and very well lsid out and you do not get deleted like at the finance brani and jerry pislner or access 403 denied at deposit accounts

  5. richard face said:
    on January 19th at 02:28 pm

    this isa greaty site why are there no posters