"No matter how paranoid or conspiracy-minded you are, what the government is actually doing is worse than you imagine." - - - William Blum

March 20, 2008

More economic fallout with long-term consequences:

Workers Raid Their 401(k) Accounts in Effort to Stem ForeclosuresStruggling to save their homes from foreclosure, more Americans are raiding their 401(k) retirement accounts to pay their bills — and getting slammed with taxes and penalties in the process, according to retirement plan administrators. Rather than borrow money from their 401(k) accounts, which would have to be paid back, a growing number of beleaguered families have been cashing out. According to USA Today, new figures from plan administrators show the number of 401(k) "hardship withdrawals" is up in early 2008 compared with the same period last year. During the first month of the year, as the economic slowdown tightened pressure on mortgage holders, hardship withdrawals rose 23% at plans that Merrill Lynch administers, compared with the same period in 2007. Merrill Lynch found that the primary reason for the rise in hardship withdrawals was to prevent foreclosure or eviction. Likewise, in the first month of the year, compared with January 2007, Great-West Retirement Services saw a 20% increase in hardship withdrawals to save a home. For workers, the consequences of raiding a 401(k) plan can be severe. About 85% of employers bar employees from making contributions for six months after taking a hardship withdrawal. Worse, employees who pull money out of tax-deferred 401(k) plans before age 59 1/2 generally must pay a 10% penalty on top of the taxes owed. “The repercussions of the housing crisis are all around us, including in depleted 401(k) plans,” said Ruben Burks, Secretary-Treasurer of the Alliance.

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