401(k) accounts are one of the more prevalent retirement savings accounts in the U.S. According to the Fort Worth Star-Telegram, a considerable amount of Americans are withdrawing some of the money saved in their 401(k)s for various expenses.
Borrowing from these accounts may lead to damaging consequences, even when using the money for reasonable purposes such as credit card debt, medical or tuition bills and home improvements.
If an employee with a 401(k) is fired, any money taken from it must be refunded expediently. Additionally, unpaid 401(k) loans adversely affect an employee’s contribution to her retirement savings.
According to the news source, by the end of 2009, one of every five workers had borrowed from their retirement planning accounts by taking out loans. Greg Marx, benefits manager at Commerce Bankshares, confirmed that this trend was on the rise.
“We have definitely seen an increase in the number of participant loans and participants who are requesting loans,” Marx told the news source.
The IRS states that employees must stop withdrawing from 401(k)s once they reach 50 percent of their vested account balance or $50,000, whichever comes first, unless 50 percent of the balance is under $10,000, in which case the limit is $10,000.