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Are 401(k) Loan Defaults Set To Resurge?

Tyler Durden's picture


Since the financial crisis hit and exposed the reality of a credit-fueled economic growth strategy, Americans have tried to maintain any kind of quality of life. With the HELOC ATM empty, they switched to Credit Cards and once limits were full, there was only one place left - their retirement plans. As the LA Times reports today, Americans are borrowing huge amounts of money from their 401(k) retirement plans - and then having big trouble paying off their debt. Stunningly, in recent years 20% to 28% of people eligible to borrow from their 401(k) accounts have an outstanding loan at any given time, the Navigant Economics study said, having borrowed a collective $105 billion from their 401(k) accounts as of 2009 - and likely considerably more since.

Estimating the 'leakage' from these retirement funds, they see loan-loss rates typically double that of the average unemployment and estimate up to $37 billion of loan defaults per year. In the 12 months through May 2012, they estimate the 401(k) default rate hit 17.4% - more than double its pre-crisis average and only marginally lower than its peak in 2009.

As they note, many people use the money to pay off other debt or to meet day-to-day expenses, and "Of course, participants are not deliberately defaulting," the study said. "They only do so when they have no other option." As unemployment rates look set to rise, one can only imagine that these 401(k) loan losses, based on their study, are set to rise significantly.


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Tue, 07/17/2012 - 14:29 | 2625107 tmosley
tmosley's picture

And here the government thought there was going to be a bunch of money to steal from our retirement accounts.


Tue, 07/17/2012 - 14:41 | 2625153 knukles
knukles's picture

But Paulie "the Unicorn" Krugman would say there's no problem in borrowing from yourself.  Especially sub 1% which shows you to be a great credit to yourself.

It's all bout me,
it's all about me,
it's all about me,
dah dump pah da dump.

Tue, 07/17/2012 - 15:09 | 2625263 Pladizow
Pladizow's picture

So these hard pressed people take a 401k loan and default - how are they then going to then pay the income taxes and potential pre 59 1/2 taxes?

This viscous cycle has a ways to go!

Shit, Im going to start selling 401(k) loan CDS - Im sure there will be no reserve requiresments - so you can trust I'll pay out!

Tue, 07/17/2012 - 15:12 | 2625296 Fukushima Sam
Fukushima Sam's picture

Let's see, I took out a loan on my 401k and bought:


  • Gold
  • Guns
  • Bullets
  • Vitamins
  • Water purification
  • Long-term food supplies

I have not defaulted yet (can't do that without losing the job, and apparently I am "too valuable" to lay off) but I would have no regrets in doing so.  The 401k is a status quo scam; I stopped contributing to it when I woke up.  I would have closed it out if I could, but again, without losing the job all you can do is take a loan out on it. 

Tue, 07/17/2012 - 15:19 | 2625347 Pladizow
Pladizow's picture

Check the custodian trust agreement, it may allow for an "in service distribution".

Tue, 07/17/2012 - 15:36 | 2625446 Dr. Richard Head
Dr. Richard Head's picture

Being on the board of my company, I fired myself (due to clause requiring termination for liquidation prior to retirement age) and then rehired myself the next day.  Best fucking termination I have ever had.

Tue, 07/17/2012 - 15:24 | 2625372 SWCroaker
SWCroaker's picture

You can withdraw early; you'd pay taxes (plus a 10% penalty) on the money as income. That's it.

A 10% penalty has not been that much of a deterrant for many...

Tue, 07/17/2012 - 15:49 | 2625542 Frank N. Beans
Frank N. Beans's picture

that's what I thought too; why borrow when you can just withdraw (plus penalty)?  Are there statistics for those who have been withdrawing early rather than borrowing? 

Tue, 07/17/2012 - 18:23 | 2626165 Whiner
Whiner's picture

More exhilarating to borrow: no 10% penalty, no 40% income taxes. Sweet delusion: will pay this back when my salary increases! Good to tap it out w a loan now before those investments managed at 1.9% crash. And be a part of the last great, best bubble. Buy some gold with it and bury it.

Tue, 07/17/2012 - 18:45 | 2626238 swamp
swamp's picture

I know some who cannot withdraw, only borrow.

Tue, 07/17/2012 - 16:27 | 2625738 dhengineer
dhengineer's picture

Never had a 401(k) but I had an IRA.  It increased quite a bit during the crash of 2008 (short both the banks and the S&P), and sold everything at the end of 2009 to buy a little old farmhouse.  Obummer and his merry band were offering their "first-time" buyer's 10 percent credit.  We already owned a house, but the tax credit still applied and since our new place was so cheap, the credit offset about half of the penalty for under 59-1/2 withdrawls.  Then we sold our first place and got our money tax-free.  We paid all of the taxes, the penalties, and we are now debt-free with a paid-up house.

Tue, 07/17/2012 - 16:37 | 2625786 DosZap
DosZap's picture


Just make sure you will be able to pay Property taxes,or all will be gone.

Tue, 07/17/2012 - 15:38 | 2625460 zuuma
zuuma's picture


I found myself in the same boat. Did much the same thing with the money.

No distribution 'till I quit or get fired (plus tax).

Instead, I borrow from myself for the purchase of tangible assets. Now< I'm repaying "myself" at 5% interest on a 5-yr loan.

HAHAHA! If SHTF before 5 years is up --  I have something very substantial. If not, I'm up 5% on the original balance - granted, it's less I have to spend now. So what? I spent it NOW on important stuff.

For me, win/ win.

Tue, 07/17/2012 - 15:54 | 2625572 Dr.Vannostrand
Dr.Vannostrand's picture

Been doing the same here for last couple of years my friend. At 30yrs old, why not? Might as well before we are forced to get .gov paper in there. Just too bad about my PM's and lead-projectice devices, you know, canoes, lakes and all that jazz.

Tue, 07/17/2012 - 16:05 | 2625629 jayc
jayc's picture

I was trying to go over all my early deducation options with our administrator and then I cockily told our Adminstrator that I'll just default on "my" loan and he laughed a bit and told me then they'll just garner my wages! 

Tue, 07/17/2012 - 16:14 | 2625674 Bananamerican
Bananamerican's picture

"he laughed a bit and told me then they'll just garner my wages!"

Must  keep  the ponzi  going....

other than that, it's "your" money.

Tue, 07/17/2012 - 23:17 | 2626835 diesheepledie
diesheepledie's picture




  • Gold
  • Guns
  • Bullets
  • Vitamins
  • Water purification
  • Long-term food supplies
  • Cases of Whiskey
  • Weed


Fixed ...


Tue, 07/17/2012 - 20:03 | 2626389 ZeroAvatar
ZeroAvatar's picture

Damn! You just HAD to mention 'that' name, didn't ya?   I just micro-vomitted.  (K*****n)

Tue, 07/17/2012 - 14:46 | 2625183 kito
kito's picture

unfortunately, the "suckers are the people who worked, put money aside into these savings vehicles based on govt incentive, and who now find themselves having to borrow, with interest payable to these predatory bastards,  against their very own "savings".....what a system....even peoples "savings" arent theirs................

Tue, 07/17/2012 - 15:10 | 2625288 fonzannoon
fonzannoon's picture

Whats funny (not) is that when people take the loan against their own savings the rate they have to pay back (to themselves) is substantially higher than prevailing rates. The rationale is "hey I may be paying higher rates but I am paying it back to myself". It's not till a few months later when they say "hey I can't afford to pay this back at these rates" and end up getting swallowed up in their own loan. Yet Bernak can raise rates in "15 minutes" if necessary and it won't have any reprecussions.....right?

Tue, 07/17/2012 - 15:37 | 2625457 Dr. Richard Head
Dr. Richard Head's picture

I truly love the "I'm paying myself back" rationale, as well. Makes me giggle and then shit unicorns......wait....I mean skittles.

Tue, 07/17/2012 - 15:52 | 2625561 kito
kito's picture

yes, except they are not borrowing from themselves, they are borrowing from a government/corporate vehicle that needs to stay viable so the house of cards continues to stand.....

Tue, 07/17/2012 - 18:46 | 2626241 Whiner
Whiner's picture

Learn the secret government loophole that let's you borrow 100% of the present value against your future Social Secrity benefits. Get $127,000-$221,000 based on your age. By obtuse Regulation loan is forgiven with no taxe implications if System implodes while loan outstanding. Only a few allocated subscriptions remaining. Send $1250 US fee for detailed report to Dr. Chimera Obamga, Postal Box 666, Dodoo, Nigeria. Refunds guaranteed if not totally satisfied. Legal opinion included by US firm, Cheatim, Cummings and Goeing. Act now! God bless you and your family.

Tue, 07/17/2012 - 16:15 | 2625680 rockraider3
rockraider3's picture

My rate is roughly 4%.  I don't know what the prevailing rates are for a personal loan, but I suspect that it's higher.

The unaffordable component to a 401(k) loan is that they are a 5-year mortgage style amortizing loan, at least in my experience that is all that is offered for my plan. So you are paying interest and principle each pay period.  That clearly makes the payment higher than just interest only or a loan with a longer amortization schedule.

Tue, 07/17/2012 - 16:51 | 2625840 DosZap
DosZap's picture

with interest payable to these predatory bastards,  against their very own "savings".....what a system....even peoples "savings" arent theirs................

If I am not mistaken kito the interest is paid back into THEIR 40k,it's their money.

Tue, 07/17/2012 - 15:50 | 2625551 Larry Dallas
Larry Dallas's picture

No one I know of personally or tangentially has ever successfully retired on a 401(k) or IRA type of defined benefit program. If you know of someone, I suggest you take them out to lunch and ask them how comfortable they feel in a product that yields no cash flow.

It’s all BS.

The only ones who made money were the money managers with their fees and elaborate Frasier Craine-laced bullshit for explaining the types of funds to Middle Americans who were purposely meant to feel dumb so they could trust these clowns.

Although I have no way of corroborating this, I bet if you did a model on this, you’d see that more than 25% (absolute) of your contributions would have gone into fees. Yes, this includes loads, monthly management fees, penalties and etc.

Once this goes, then lending guidelines will be relaxed and folks can use HELOCs to get by. It’s a vicious cycle.

Went into the Citibank branch in the southwest once to deposit a check for 5 figures.

All the sucker alarms must have gone off because all of a sudden a 25 year old punk, ostensibly uncomfortable in a dress shirt and tie that did a poor job of hiding his sleeve and neck tattoo came out and told me about their investment products. What does this asshole know about investment products? I bet he couldn’t even spell “annuity”.

Like sitting through a time share sales presentation, I got up and walked out after I demanded the deposit slip.  


Tue, 07/17/2012 - 15:54 | 2625568 fonzannoon
fonzannoon's picture

Larry if the market has returned what....2% a year the last 12 years, and you paid 1.5% in fees then maybe it's not 25% of your contributions that went to fees but rather 70% of your gains.

Tue, 07/17/2012 - 15:51 | 2625554 sessinpo
sessinpo's picture

This is what IRA accounts are for. After all, it is generally blue collar workers and unions that have pensions and 401ks. It is more likely white collar those that have reach financial critical mass to have IRAs. Anything on the books is open for game and changes in tax laws.

What, I thought I would get my dispersement tax free because I paid taxes on it going in. Well, fight the IRS when the rules change. What, I thought retirement was 6# years old. Fight the IRS when the retirement age gets raised to 70+. What I, I'm not getting SS, fight the IRS when they tell you the government is broke. Oh yea, and the government wants to know if you have any PMs stored any where. LOL.

Mon, 09/24/2012 - 06:31 | 2823661 amanda33
amanda33's picture

I have borrowed money from my 401(k) account because it was the fastest way to cover a margin account when the SEC filed a complaint against a company that I had purchased shares of on margin. Had my employment been terminated before I paid off the loan online, the balance of the loan would have been due immediately. I was over 59 1/2 and wouldn't have been subject to Federal income tax penalties. I was lucky.

Tue, 07/17/2012 - 14:30 | 2625112 TheFourthStooge-ing
TheFourthStooge-ing's picture

Fuck it - better to spend it now before Uncle Scam makes a move to grab it.

Tue, 07/17/2012 - 14:45 | 2625169 Thomas
Thomas's picture

It's only about $1000 per taxpayer. On the other hand, the average taxpayer had about $2000 total in retirement!

Tue, 07/17/2012 - 14:45 | 2625176 LawsofPhysics
LawsofPhysics's picture

Correct, apparently many americans have already "gone greek".  This should end well.

Tue, 07/17/2012 - 16:35 | 2625779 DosZap
DosZap's picture

Defaulting on your own 401k loan is the only way most can GET IT OUT, before its seized.

Smart moves.............just bank it,in something of value, and under your control.

Tue, 07/17/2012 - 19:07 | 2626290 pacu44
pacu44's picture

not that it matters, but it defaulting on your 401k loan is not recorded on your credit score...

Tue, 07/17/2012 - 14:30 | 2625115 ImNotARobot
ImNotARobot's picture

Could this be the reason they use to "nationalize" our 401k plans and finally steal everything we have?  They never let a good crisis go to waste after all...

Tue, 07/17/2012 - 14:33 | 2625118 Daily Bail
Daily Bail's picture



From Bloomberg earlier today.  Major kudos to the segment producer for creating a truly beautiful moment as Emperor Warren appears naked in front of millions.  By the way, Becky Quick's favorite Uncle Warren claims to drink 5 Cherry Cokes per day.

HILARIOUS - Warren Buffett Fails The Cherry Coke Taste Test LIVE On Bloomberg TV



Tue, 07/17/2012 - 14:36 | 2625138 Clueless Economist
Clueless Economist's picture

My Good God No!  The thoughts of Elizabeth Warren naked are too much for me to deal with.

Tue, 07/17/2012 - 20:14 | 2626423 ZeroAvatar
ZeroAvatar's picture

I hear you!  The thought of UghmanTM  alone is too much for me to deal with.

Tue, 07/17/2012 - 14:42 | 2625155 azzhatter
azzhatter's picture

like everything else about this guy- a phony

Tue, 07/17/2012 - 20:16 | 2626433 TheFourthStooge-ing
TheFourthStooge-ing's picture

I'm surprised that after tasting all four samples the old goat could even remember what they were doing.

Tue, 07/17/2012 - 14:46 | 2625181 Winston of Oceania
Winston of Oceania's picture

I once saw him giving a walking interview while eating what looked like ensure on a stick. Disgusting spectacle...

Tue, 07/17/2012 - 14:56 | 2625236 Hype Alert
Hype Alert's picture

5 Cherry Cokes per day!  Doesn't that exceed Bloomberg's soda ban?

Tue, 07/17/2012 - 15:43 | 2625496 Bicycle Repairman
Bicycle Repairman's picture

Maybe Warren's coke doesn't contain corn fructose.  He may go with the healthier, acceptable, choice: aspartame.  LOL.

Tue, 07/17/2012 - 15:54 | 2625573 sessinpo
sessinpo's picture

It's pure Columbian coke with a hint of cherry. It helps her deal with her high cheek bones she inherited from her Indian ancestors

Tue, 07/17/2012 - 15:41 | 2625479 Bicycle Repairman
Bicycle Repairman's picture

Two of the four were Coke products, so the sample was rigged in his favor. 

In the end, he misunderstood the question.  He didn't answer "Which one is Cherry Coke?"  He answered "Which do you prefer?"  He, quite logically, chose Doc Pepper.

Tue, 07/17/2012 - 14:32 | 2625123 Boilermaker
Boilermaker's picture

Yea, this is a real worry.

Tue, 07/17/2012 - 14:34 | 2625130 ReallySparky
ReallySparky's picture

What are the tax implications for the individuals that default and do not pay the 401K loans?

Tue, 07/17/2012 - 14:37 | 2625141 Chump
Chump's picture

It's treated as a disbursement meaning the account holder is on the hook for income taxes and an early withdrawal penalty.  I think it comes to approximately 40% of the total amount withdrawn depending on your tax rate.

Tue, 07/17/2012 - 14:38 | 2625144 The Gooch
The Gooch's picture

If they write it off, you will be served a w-2 (or something) as it is now "EARNED INCOME"

on your part.

Tue, 07/17/2012 - 20:55 | 2626533 BooMushroom
BooMushroom's picture

...and then you are retroactively considered "employed" for the whole year. Bullish!

Tue, 07/17/2012 - 14:44 | 2625167 Winston of Oceania
Winston of Oceania's picture

I went Gault and cashed mine out, 10% penalty right off the top and then they taxed the WHOLE thing as earned income and not a portion as capital gains.

Tue, 07/17/2012 - 14:53 | 2625221 madridisburning
madridisburning's picture

Is that Willie Gault to whom you refer? He could sure catch a football and, if I recall, push a bobsled.

Tue, 07/17/2012 - 16:24 | 2625726 rockraider3
rockraider3's picture

I met Willie Gault about 10 years ago.  He was working as a principal in a private equity firm.  I worked for a lender that provided senior debt so they could LBO a small airline.  Anyway, when the transaction went south and we were having workout discussions with management and the PE firm, he turned out to be exactly as big of a box of rocks for brains as you'd expect.  I mean, the dullest tool in the toolshed.  In my opinion of course. We got out whole, so that was all I really cared about. 

Tue, 07/17/2012 - 15:08 | 2625280 SilverIsKing
SilverIsKing's picture

That 10% penalty goes directly into Barney Frank's warebrobe fund.

Tue, 07/17/2012 - 16:29 | 2625750 Mike7.62
Mike7.62's picture

I checked with Vanguard, who are the custodians of my company 401k, and they told me that if I defaulted on the loan that it would be taken from the the principal, and would incur a tax event due to early distribution, and would also include a 10% penalty as I'm under 59 1/2 years old. It would not go against my credit rating as it was a collateralized loan using my own funds.

I have done this once in the past in order to buy a farm, and it has been fully paid back. I intend to do it again to place a permanent house on the farmland.

Since the government has been holding hearings and doing NPRM's on confiscation, or "nationalization" of the 401k's and IRA's, and either forcing some percent into Treasuries or into a GRA as outlined by Theresa Ghillarducci in Congressional testimony, I have stopped contributing to the plan, and instead used the same amount-10%-of my gross to purchase metals on a dollar cost average basis.

Taking a loan against my own funds seems like a no brainer, especially as the government has already set a precedent in using retirment monies to fund itself when short. The debt Kabuki Theater last year showed this when "Little Timmy" Geithner used civil service TSP (401k) and defined benefit funds to meet .gov spending requirements until the debt ceiling was raised. Thinking that they won't go after private funds is beyong naive.

Tue, 07/17/2012 - 14:36 | 2625135 The Gooch
The Gooch's picture

Get that money out NOW (Mrs. Gooch) before it gets Russell Corzined.

Bitch just won't listen.

Tue, 07/17/2012 - 14:37 | 2625139 LawsofPhysics
LawsofPhysics's picture

So, in a world with no rule of laws or contracts and no consequences for bad behavior on any level, if you can not touch it, you don't own it.

Gee, who would have guessed?  Nothing changes until there are real consequences for bad behavior. at all levels of society.

Got physical? you fucking better.

Tue, 07/17/2012 - 19:11 | 2626302 pacu44
pacu44's picture

Got physical? you fucking better.


Quote of the day!!!!!!

Tue, 07/17/2012 - 14:37 | 2625140 Dr. No
Dr. No's picture

These people are merely trying to right a wrong.  They should have never had a 401k in the first place.  If they had one, they should have cashed out.  Since they took the loan (good), not paying back is really the only way to get out from under the trap.

Tue, 07/17/2012 - 21:00 | 2626544 BooMushroom
BooMushroom's picture

If anyone had bothered to FUCKING ASK ME, I would've rather kept the company match and my earnings (post tax even) for myself.

But nobody asked. If you want the company match, you throw your money down the 401(k) well.

Tue, 07/17/2012 - 14:41 | 2625149 skm
skm's picture

hopefully they are ensuring any 401(k) loan can be repaid before they leave their job (if any) for the sake of hefty penalties.

Tue, 07/17/2012 - 14:42 | 2625158 Village Smithy
Village Smithy's picture

I wish that I had realized earlier how many different ways that money can leak into the economy and keep it limping along. I have been baffled at how well things like XRT and XHB have held up. Now I get it, there's massive student loans, unpaid mortages, disability, 401k loans etc. all of them helping to keep the Ponzi alive, while at the same time, digging the hole that we must eventually climb out of, deeper by the day.

Tue, 07/17/2012 - 14:45 | 2625172 The Gooch
The Gooch's picture

There's no climbing out of a black hole.

Tue, 07/17/2012 - 14:50 | 2625204 Al Huxley
Al Huxley's picture

Everybody's just hoping if they dig far enough then they'll make it clear through to China and won't have to climb  back out.

Tue, 07/17/2012 - 15:05 | 2625269 banksterhater
banksterhater's picture

how about the ave Squatter without rent now 24 months? Some are over 5 YEARS free rent!

Tue, 07/17/2012 - 16:02 | 2625614 Village Smithy
Village Smithy's picture

Upate: Please add underfunded pensions and misappropriated funds to the above list.

Tue, 07/17/2012 - 14:53 | 2625171 toady
toady's picture

Has anyone ever profited from a 401k investment? My personal experience has been losing any matching funds to fees, mismanagement, and 'market corrections'. Fortunately I was usually able to get the money I contributed. I'm 100% out of that shit at this point.

A brief survey of friends and family shows similar or worse outcomes. Take the small loss now while you still can!

Tue, 07/17/2012 - 14:54 | 2625225 madridisburning
madridisburning's picture

Yes, gold is much better investment for stupid people. No fees. Hide it in the mattress.

Tue, 07/17/2012 - 15:33 | 2625424 SWCroaker
SWCroaker's picture

*If* you have a self-managed feature, then the question becomes "has anyone ever made money in the market?", with the caveat "... if you didn't pay taxes on dividends or capital gains, would that help your chances of growing a pool of money in the market?".


In my case, yes.  To the point where I'm close to setting up my own annual (10% penalized) income stream from a portion of my 401k.  Whatever is left after taxes goes into a mix of bullion and *taxable* income streaming stuff (I want to retire early), but the bulk of the 401k is untouched and free to cap gains free trade as I see fit.

Tue, 07/17/2012 - 15:57 | 2625586 toady
toady's picture


Good to hear somebody's is making it work. I was getting tired of the 'my 401k is a 201k now!' jokes.

Tue, 07/17/2012 - 14:48 | 2625191 Buzzworthy
Buzzworthy's picture

I move that the word "retirement" be struck from the English language.  No one is going to be retiring.

Tue, 07/17/2012 - 14:49 | 2625202 Village Smithy
Village Smithy's picture

But we need it so that we can tell our grandchildren about the past.

Tue, 07/17/2012 - 15:04 | 2625261 konputa
konputa's picture

In auto racing, retirement refers to when a car has a catastrophic failure that ends its participation in the race. For many, this is exactly what retirement will be - working until you die on the job.

Tue, 07/17/2012 - 16:26 | 2625734 Miffed Microbio...
Miffed Microbiologist's picture

In horse racing, catastrophic failure means a broken leg on the back stretch which does end the participation in the race. Unfortunately the retirement part is a bullet to the brain ( well, to be honest, in modern times more likely massive anesthesia to the jugular). In other words, execution. There may be a time when we look back fondly to the dying on the job days.


Tue, 07/17/2012 - 16:56 | 2625863 konputa
konputa's picture

Haha. +1 for you, Miffed.

Tue, 07/17/2012 - 14:49 | 2625198 LFMayor
LFMayor's picture

Hell yeah I'm borrowing it.  In fact, since my goddamn plan won't allow me to early withdraw even with penalty (which I would gladly do), I'm making use of the "primary residence financial hardship" clause and not paying my mortgage in bi-monthly sections. Lender sends nasty letter threatening foreclosure.  I submit letter and take another bucket full out of the 401k

Here's the real tell people.  The 401k managing firm used to require a phone call in, so that the peons could beg and plead their cause with a case handler.  This month, now automated online fully.  Simply print this cover sheet and fax your supporting documents to us.  Probably increased frequency backlogged them and they couldn't afford to up-staff to keep up with demand.

Get the money out now, before the government does it for you.

Tue, 07/17/2012 - 15:03 | 2625258 Toolshed
Toolshed's picture

401k's are part of the big ponzi. With my plan, before you can make a hardship withdrawl, you first must make a loan from your account. This insures that even after you stop making your contribution from your paycheck you still have to make a loan payment, thereby maintaining the influx of funds at the bottom. What a fucking scam. And even when you do qualify for the hardship withdrawl, you still can't withdraw any of your employers contributions or any gains (LOL) that were made. Just another example of big finance screwing the citizens with the assistance of big government. This can only  end violently with war or revolution.

Tue, 07/17/2012 - 15:14 | 2625316 Pladizow
Pladizow's picture

Of course, ERISA was passed to enrich Wall St.

Its doing what is was designed to do.

Tue, 07/17/2012 - 16:32 | 2625766 rockraider3
rockraider3's picture

Do you get it out penalty free this way?  What about taxes, I presume you still have to pay those?

And just so I'm clear, you purposely are missing mortgage payments to get delinquency notices on your primary residence.  You then use those notices to show evidence to your 401(k) plan administrator to get a hardship related early withdrawl from your plan?  That's actually an interesting concept.

Tue, 07/17/2012 - 19:05 | 2626285 LFMayor
LFMayor's picture

you got it right. The qualifications are that the lender sends notice that threatens foreclosure, has my name on it and the amount delinquent. I'm getting hit on taxes though, it's not penalty free but you can take the taxes out from the till with the withdrawal, there's even a checkbox on the form.

And yes to comment above, I had to take out the 50% loan on the 401k before I "qualified" for the hardship.  But I'll do that again as soon as I get the loan repaid... I'll pull another 50% from it until the damn thing is empty.

Ultimately my fault for daring to believe, but I was young and dumb and it was long before I found ZH.

Tue, 07/17/2012 - 14:50 | 2625207 Hype Alert
Hype Alert's picture

And just when the economy was turning around..  [/sarc]

Tue, 07/17/2012 - 14:57 | 2625212 fockewulf190
fockewulf190's picture

Next will be kidneys for sale on Craigs List.

Tue, 07/17/2012 - 15:01 | 2625228 robertocarlos
robertocarlos's picture

Yikes! That is really borrowing for no future.

Tue, 07/17/2012 - 14:55 | 2625230 digalert
digalert's picture

401K's are another scam foisted on the masses. Don't worry, the government will soon tell you that the only way to ensure your little retirement nugget, is to convert the whole balance to UST bonds! After all, your money is just sitting there, doing nothing and the birth certificate deficient POTUS says it's your responsibility to share your wealth.

Tue, 07/17/2012 - 14:55 | 2625231 GrinandBearit
GrinandBearit's picture

Loans? lol.  I strategically cashed out of my 401k, IRA and Roth years ago.  I had no income when I did it, so I was able to reduce the tax implications.  I bought PM's with the proceeds... when they were much, much cheaper.

Tue, 07/17/2012 - 15:13 | 2625302 CunnyFunt
CunnyFunt's picture

If a significant percentage of lendees bought physical PMs with their 401(k) loans, things might get interesting. But most of the loans likely will be taken to pay other personal debts.

Tue, 07/17/2012 - 16:33 | 2625769 rockraider3
rockraider3's picture

No doubt, this is what I'm doing with my 401k loan.

Tue, 07/17/2012 - 15:17 | 2625332 El
El's picture

I did the same thing. Now I'm about to tell JPM, Barclays & HSBC to kiss my behind. Apparently the bailouts amounted to around 10k per taxpayer. I figure I've already paid in full.

Tue, 07/17/2012 - 15:04 | 2625260 madridisburning
madridisburning's picture

So, now, in the tin foil hat wearing crowd, the government is confiscating 401-K's? How far you will you people stretch credibility, not to mention sanity?

Yes, the economy and markets are going to go into the some point. That much we can agree on. But, the rest of this stuff? Oh, come one! Flip the record. Change channels. Read something a little less idealogical. Get a grip.

Tue, 07/17/2012 - 15:10 | 2625290 SilverIsKing
SilverIsKing's picture

Good one.

Tue, 07/17/2012 - 15:16 | 2625329 Pladizow
Pladizow's picture

Pelosi is on record discussing accessing retirement funds!

Tue, 07/17/2012 - 15:51 | 2625560 yabyum
yabyum's picture

link please

Tue, 07/17/2012 - 15:25 | 2625313 Winston Churchill
Winston Churchill's picture

What about the tax(unspecifed rate) on 401k's hidden in Obamacare ?

Glad there is one born everyday.

Even gladder its you , not me.

The hidden fees in these plans are astronomic.

Vested out of mine in 07,before eberything went south

Tue, 07/17/2012 - 15:15 | 2625325 Dr. Engali
Dr. Engali's picture

I have some news for you. They have run trial ballons on 401k confiscation through congress already.


Democrats in the U.S. House have been conducting hearings on proposals to confiscate workers’ personal retirement accounts — including 401(k)s and IRAs — and convert them to accounts managed by the Social Security Administration.


Triggered by the financial crisis the past two months, the hearings reportedly were meant to stem losses incurred by many workers and retirees whose 401(k) and IRA balances have been shrinking rapidly.
GRAs would guarantee a fixed 3 percent annual rate of return, although later in her article Ghilarducci explained that participants would not “earn a 3% real return in perpetuity.” In place of tax breaks workers now receive for contributions and thus a lower tax rate, workers would receive $600 annually from the government, inflation-adjusted. For low-income workers whose annual contributions are less than $600, the government would deposit whatever amount it would take to equal the minimum $600 for all participants.

In a radio interview with Kirby Wilbur in Seattle on Oct. 27, 2008, Ghilarducci explained that her proposal doesn’t eliminate the tax breaks, rather, “I’m just rearranging the tax breaks that are available now for 401(k)s and spreading — spreading the wealth.”

All workers would have 5 percent of their annual pay deducted from their paychecks and deposited to the GRA. They would still be paying Social Security and Medicare taxes, as would the employers. The GRA contribution would be shared equally by the worker and the employee. Employers no longer would be able to write off their contributions. Any capital gains would be taxable year-on-year.

Analysts point to another disturbing part of the plan. With a GRA, workers could bequeath only half of their account balances to their heirs, unlike full balances from existing 401(k) and IRA accounts. For workers who die after retiring, they could bequeath just their own contributions plus the interest but minus any benefits received and minus the employer contributions.

Another justification for Ghilarducci’s plan is to eliminate investment risk. In her testimony, Ghilarducci said, “humans often lack the foresight, discipline, and investing skills required to sustain a savings plan.” She cited the 2004 HSBC global survey on the Future of Retirement, in which she claimed that “a third of Americans wanted the government to force them to save more for retirement.”

Tue, 07/17/2012 - 15:21 | 2625356 fonzannoon
fonzannoon's picture

Hey doc can you say variable annuity with guaranteed lifetime withdrawal benefits?

Tue, 07/17/2012 - 15:30 | 2625410 Getting Old Sucks
Getting Old Sucks's picture

Last year, I withdrew half of my IRA money and paid the taxes and this year, I will withdraw the other half.  I did it in anticipation of taxes going back up in 2013.  LOL, my banker questioned why I would do this?  Warning to those over 60, do it now!  I wouldn't be surprised if short of confiscation, the government wants to tax withdrwals at the same tax rate when deductions were taken.  So, if you are retired, get your money now. 

Tue, 07/17/2012 - 16:56 | 2625860 GrinandBearit
GrinandBearit's picture

Those under 60 should do it too.  Pay the 10% and get it out NOW before they steal it all.

Tue, 07/17/2012 - 15:46 | 2625527 Abiotic Oil
Abiotic Oil's picture

Google is your friend.

Tue, 07/17/2012 - 17:49 | 2626069 Mike7.62
Mike7.62's picture


 No tinfoil required. All you have to do is look at Congressional testimony and check both Labor and Treasury Dept. websites, where the NPRM took place this past February. Idealogical? I'm a political atheist supporting nothing but the Constitution as originally written and currently amended. Sounds to me like you're the one with an ideological ax to grind.

Tue, 07/17/2012 - 15:09 | 2625283 mobtown
mobtown's picture

I had mine up to $250K and used it to raise my 5 kids. Cashed it out from '94 to '05. Paid the taxes and penalty, still came out ahead. They're grown up and doing great (for now).

I'm glad I did it.

Tue, 07/17/2012 - 15:12 | 2625300 fonzannoon
fonzannoon's picture

Hey mobtown I have news for you, the 80's and 90's were the exception, not the rule.

Tue, 07/17/2012 - 15:38 | 2625297 Dr. Engali
Dr. Engali's picture

What a stupid ass thing to do, taking money from your 401k to pay off debt .Screw the banks they can't touch  401k money. Default on your debt before they have everything you own.

Tue, 07/17/2012 - 15:54 | 2625570 kito
kito's picture

doc--as long as your money is in their 401k account, they own it............

Tue, 07/17/2012 - 16:06 | 2625627 Dr. Engali
Dr. Engali's picture

Well you're right there kito. But it drives me nuts to hear about somebody pulling money out of a 401k or an IRA to pay off a debt. You can carry them through bankruptcy without them touching it.  Chances are thes people will pay off their debt with their 401k and have to declare bankruptcy anyway. Leaving them with nothing and the bank with everything.

Tue, 07/17/2012 - 16:27 | 2625735 mobtown
mobtown's picture

I still have my five great kids.

Tue, 07/17/2012 - 19:17 | 2626321 pacu44
pacu44's picture

Doing the right thing is the right thing to do...


Separates good from evil.


Tue, 07/17/2012 - 15:13 | 2625304 sudzee
sudzee's picture

Ron Paul - Gold commision?

Freedom Fest 2012 was held in Las Vegas July 11-14, 2012. On Saturday, July 14, U.S. Senator Rand Paul, Ky., told attendees that he was going to recommend that likely Republican presidential nominee Mitt Romney announce a plan to appoint a new U.S. Gold Commission along with a statement that he would appoint Ron Paul (Rand Paul’s father) as chair. When I talked with Sen. Paul at breakfast the next morning he did not elaborate further on this announcement.


Tue, 07/17/2012 - 16:08 | 2625641 Backdraft
Backdraft's picture

All it would take to commandeer IRA's & 401(k)'s is an excutive order from whomever the POTUS might be. With the current orders in place, they ALREADY have almost eveything covered; ie, energy, food, fuel, transportation, communications,... why not they try it with private accounts? Sure the backlash would be a muthafucker... but that backlash followed by martial law is coming anyway!

Personally, I , for some time, was in denial that this might happen in the USA. But look at MF Global and now PFG. The fucking auditors did their best Stevie Wonder impression in ignoring what was happening. I'd rather defned my shit now than for it to be in anybody else's charge. The hell with them.

Tue, 07/17/2012 - 16:09 | 2625645 rockraider3
rockraider3's picture

401(k) plans are a trap.  They entice you with employer matching, which makes it impossible to turn down.  I get a 50% match up to 6% of my salary, immediate vesting. So if you don't contribute 6% of your salary, you are giving up a 50% return.  That's tough to pass on.  Then they jam you with a menu of poor investment options which they rarely change no matter how much you complain (in my experience). 

So my work around is taking out a 401k loan. I keep contributing, and getting the match.  But take out the maximum dollars via a loan to invest in tangible assets.  I then pay interest to myself, something like 3 or 4%, which funnels back into my 401k account via automatic payroll deductions.  It's kind of like investing in a 3% coupon bond, but you are paying yourself. The 401(k) loan is a 5 year mortgage style amortizing loan, unfortunately, but that may vary by plan. Woudl be better if it was interest only with a bullet at maturity, but not an option for me.

It's not perfect.  But short of just pulling all of your funds, incuring the tax ramnifications, and opting out of the 401(k) plan (and missing the 50% match), it's about the best I could come up with.

Tue, 07/17/2012 - 16:40 | 2625797 DosZap
DosZap's picture

 They entice you with employer matching, which makes it impossible to turn down. 

Most have stopped, or lowered it to the point its no longer worth the risk.You are lucky, just make sure you get IT out before the Gestapo gets it.

Tue, 07/17/2012 - 16:42 | 2625813 rockraider3
rockraider3's picture

Alex Jones interviewed Col Craig Roberts last week.  He says the big event in October, presumably the one the military has been training and prepping the police for, is a confiscation of IRA's (presumably 401k too) to invest in the GRA's (government retierment accounts).

Check about 26:20 in this video...


Tue, 07/17/2012 - 17:53 | 2626083 daveeemc2
daveeemc2's picture

Today tried to roll over whats left of 101k account (thats a 401k after being exposed to market conditions for 3 years) and consolidate so i can better manage losses.....

Phone rep sales pitch - "you know, you can roll over that money into a IRA money market mutual fund where we can reinvest earnings into foreign currency accounts with compounding interest ....annnnnnd its gone.  Its all gone.  POOF!"

Tue, 07/17/2012 - 18:34 | 2626205 rockraider3
rockraider3's picture

Your 401k administrator is using a sales pitch from South Park? Well, I guess it's about as good as any.

Tue, 07/17/2012 - 20:21 | 2626445 Fascist Dictator
Fascist Dictator's picture

OT: Received a notification from my annuity stating that as of 8/1/2012 they will no longer take any 'purchases'. And so it begins.....

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