Here's another post from my awesome intern!!
My name is Alicia Boyd and I am a full time student at Bay Path College and work part time. I have a passion for good businesses and excellent customer service. I hope to work some where within the insurance field some day because of its stability.
As I sit in my financial literacy class and listen to all the information regarding 401 K and IRA’s I start to get a little scared at the fact that I am going to be leaving school soon and will have to start planning for my retirement. Planning for retirement and or your future is an important and necessary aspect of every person’s life. The key is to find a company that will offer a company match, which in essence means you put 4% into your 401k they will counter your offer by putting in 4% on their part.
In class, we learned that it is not a good idea to take out money from your 401k because fines will hit you and your money will then become money that is double taxed when you are ready and or capable of paying back the loan you took out of your company’s 401k. Therefore, when I read this article online about a bill trying to be passed in order to make it easier for people to pay back the loans that they had to withdraw I had mixed feelings.
After reading it I began to agree with this acts right to be established. This new act is entitled The Shrinking Emergency Account Losses Act, and will extend the grace period of 401k loans so that employees and or former employees can avoid penalties for repaying loans plan. Currently an employee has a minimum of 60 days to put the money they took out of their plan back into their account before they will receive a penalty (taxes and fees). This new act will stretch the time to pay to the next date that the worker files federal income taxes.
This will benefit people who decide to take out loans from their company’s savings plan because of an emergency or job loss and want to avoid fees when they decide to leave a job. This will also make it easier for people to take out loans on their 40lk plans and or company savings plans so they can use the money if they are hit by a series of unfortunate events. According to this article people end up defaulting on these loans 70% of the time, because they had to leave their job and only 3% of active employs default. Which to me seems like it would be all right to give the people who lost their job due to our current state of the economy a better chance by offering them some extra time.
Also, as of right now if someone is to take out money from their 401k plan they are unable to put money back into that plan and receive the company match for 6 months. From my perspective if the person took our the emergency loan to cover a cost and has paid it back or is almost finished paying it back, they should be able to take part in the company match program as soon as possible. This way they can try and catch up with their savings since they had to withdrawal some and fall behind on their retirement savings in the first place.
Source: Senate bill aims to prevent 401(k) leakage By Kenneth Corbin March 25, 2013