Just yesterday a friend of mine shared that his wife is going to withdraw $21,000 from her 401K to pay for their 3 year old to go to nursery school for 3 hours a morning next September. For those reading this outside of Manhattan, the numbers to dial for a coronary are 9-1-1!!! Yep, $21K for 15 hours of nursery school per week. Which brings me to this post today at Calculated Risk regarding the surge in 401K withdraws to keep homes from going to foreclosure.
Tanta at CR references Christine Dugas’ USA Today article 401(k)s tapped to save homes. As the economy struggles despite some saying that we are NOT in a recession (LA Times), more and more people are finding themselves in difficult financial situations and are doing what’s necessary to stay afloat.
Struggling 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, plan administrators say.
This is happening even as borrowing from 401(k) accounts remains fairly flat. Fewer still are borrowing from 401(k) plans to buy homes. By contrast, 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.
The main reason? The need to stave off foreclosure or eviction.
Consider Tamara Campbell, who raided her 401(k) after her husband was laid off from his job as an occupational technician, and they fell behind on their mortgage for several months. "If I hadn’t done that, we would have been foreclosed on last year," says Campbell, who lives in a Denver suburb.
No evidence of this happening here in Manhattan…yet. But if some are finding the need to tap the 401K for education, saving their apartment may be next. It’s getting ugly out there!