Thinking about taking a loan from your 401(k) plan? Think again. It’s no secret that many Americans were hit hard and are still struggling to recover from the financial crisis. Even those who weren’t laid off or downsized during the recent recession may think of their 401(k) accounts as piggy banks instead of the retirement plans that they are. A Wells Fargo analysis released yesterday shows a “28 percent increase in the number of people taking loans out from their 401(k) and that the average new loan balances increased to $7,126 from those taken out in the fourth quarter of 2011 – a 7% increase from $6,662.”
Taking a loan from a 401(k) plan can have a devastating impact on a person’s long-term financial – and retirement – security. Though the idea of a 401(k) loan may seem like you’re borrowing money from yourself, it isn’t that simple. Here’s why:
The Pension Rights Center applauds the introduction of a new bill, the Shrinking Emergency Account Losses in 401(k) Savings Act of 2013 or SEAL Act, which would address some of the concerns noted above. The bill would extend the period that workers have to repay their 401(k) loans keep predatory financial institutions from targeting vulnerable workers and retirees with credit cards or debit cards that are tied to 401(k) plans.