By Jordan Dechtman, Wealth Management

09/14/2010 A recent report from Fidelity Investments found that in the second quarter, 2.2 percent of participants in its 401(k) plans took hardship withdrawals, up from 2 percent a year earlier. Of those who took a hardship withdrawal a year ago, 45 percent took an additional one in the second quarter of this year.

IRS guidelines allow hardship withdrawals only for specific reasons, such as tuition payments, purchase of a primary residence, unreimbursed medical expenses and prevention of foreclosure.

Absent one of those reasons, some 401(k) participants turn to another option for taking money from their plan account – a loan. The temptation in using a 401(k) loan is similar to that of a home equity loan – the old “I’m paying myself back” rationale. Consider the implications, however, of not being able to pay yourself back because of disability or loss of your job. Consider the loss of earnings and compounding opportunities by taking that money out of play. Consider you will be borrowing pretax dollars and replacing it with after-tax dollars, so you will have to work more hours to replace the same amount of money. And consider the fees that your plan may impose on loans, such as asset liquidation fees.

Another potential pitfall to a 401(k) loan: If you leave employment, whether of your own volition or at the request of your company, your employer can require repayment within 60 days. If you fail to do so, the IRS will treat the unpaid balance as a distribution, on which you will owe regular income tax and, if you’re under age 59½, a 10 percent penalty.

Vacations, new cars, going back to school for a second (or third) degree and even buying a home are not hardships. These are expenditure decisions that should be worked into your budget – not borrowed from your future. If you or a family member is considering a 401(k) early withdrawal, hardship withdrawal or loan, please call your personal financial advisor, Jordan, at 303-741-9772, email him at Jordan@JordanDechtman.com or visit our website at www.JordanDechtman.com for help in considering all the implications.

About Jordan Dechtman Wealth Management. Jordan Dechtman Wealth Management is an independent Colorado financial services firm, serving clients since 1984. Jordan Dechtman Wealth Management helps you plan, predict, protect, your future one day at a time.

To learn more about the Jordan Dechtman Wealth Management difference, please contact Jordan Dechtman Wealth Management at 303.741.9772 or www.JordanDechtman.com .
Member. FINRA-SIPC
Phone. 303.741.9772
6025 S Quebec Street, Suite 170
Centennial, CO 80111
PR Contact: Jordan Dechtman
Jordan@JordanDechtman.com
www.JordanDechtman.com