US - An amendment to legislation which would waiver the 10% early withdrawal penalty for US homeowners who use retirement savings to avoid foreclosure will still be pursued, the office of US Senator Bill Nelson confirmed to Global Pensions.
"If someone needs to use retirement money to save their home they should not be penalised," said US Senator Nelson after the Senate failed to consider a provision waiving the 10% penalty for 401(k) early withdrawals.
The amendment was due to go before the Senate last week, but was dismissed for procedural reasons. The office of Senator Nelson said although the legislative calendar for the rest of the year was very full, he was trying to have the proposal included in the Senate Tax Extenders Bill of 2008.
Two weeks ago the US Senate Special Committee on Aging held a hearing on reducing 401(k) leakage caused by loans and withdrawals.
Alison Borland, defined contribution consulting practice leader at Hewitt, said any deterioration of retirement income was risky, even though hardship withdrawals were designed in 401(k) plans specifically to address dire circumstances such as foreclosure.
She continued: "Withdrawals should only be used as a last resort. As soon as possible after the withdrawal, savings rates should be increased to try to make up for some of the losses, recognising it will likely be very difficult to replenish the full amount of the withdrawal, depending on the size."
Joellen Leavelle, communications and outreach coordinator, Pension Rights Center, said: "Taking money from a 401(k) plan to save a house might be a quick fix but it can also jeopardise your future retirement security."
She added: "Money in your 401(k) is protected from creditors. Your house is not. There is no guarantee that using 401(k) money will prevent a home from falling into foreclosure later."
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