Homeowners Using 401(k) Funds To Avoid Foreclosure?

The Chicago Tribune reports:

• Despite potential tax and investment problems, more investors have been borrowing from their 401(k) plans or taking hardship withdrawals in recent months, some retirement plan providers say. [...] Indicative of some of the stress, the amount of calls to Principal Financial Group Inc. about hardship withdrawals, while small, has jumped significantly in recent months, company officials said. Not all 401(k) plans permit hardship withdrawals, but the IRS allows them for, among other things, medical or funeral expenses, purchasing a primary residence, or avoiding eviction from or foreclosure on a primary residence.

• The number of calls asking about withdrawals to prevent a potential foreclosure or eviction doubled in August over July, said Janet Fossell, director of individual investor services for Principal. There were fewer calls in September than August, but still more than in July.

• [One industry executive] warns people not to use their 401(k) savings if they're going to end up in bankruptcy. That's because in most plans, the 401(k) assets are protected in bankruptcy."The real issue is, what are people facing foreclosure going to do?" he said. "You don't want to tap the plan just to buy time because then you lose your home and your retirement."

For more, see Cash-strapped Americans raiding their 401(k)s.