Fidelity Investments is reporting that more Americans are raiding their retirement savings to stave off eviction or foreclosure, pay for college, or buy a home.
Early withdrawals from retirement savings jumped 38 percent in the second quarter, according to the Boston Globe.
And the number of people borrowing money against 401(k) accounts is at a ten year high, according to Fidelity. Twenty-two percent of 401(k) holders have outstanding loans against their accounts.
Most financial planners advise against tapping retirement funds early because there are taxes and penalties involved, and most plans won’t accept new contributions to an account for at least six months after a withdrawal. And then there’s the long-term danger of not having enough money to live on during retirement.
A bankruptcy case can sometimes help people in this predicament, at least if they are borrowing or withdrawing because their back is against a wall. Retirement savings are completely exempt from attachment in a bankruptcy case, while loans against the accounts can be discharged. Eliminating underlying debt may eliminate the need to tap retirement funds in the first place, allowing debtors to save their savings for the future, and participate in an economic recovery when we have one. Talk to a bankruptcy attorney about it!
By Doug Beaton