Bill would remove penalty for tapping 401(k) to avoid foreclosure

WASHINGTON - OCTOBER 26:  Internal Revenue Ser...
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This must be the last recourse for employees. By relying on your retirement account for every emergency your retirement future will be in jeopardy. Responsibly borrowing must be a priority for all Americans.

The change would work like this: Under current rules, anyone making what’s known as a “hardship” early withdrawal of funds from their 401(k) must pay the IRSa 10% penalty on top of ordinary income taxes. A bill introduced Oct. 5 would waive the penalty if the purpose of the distribution is to make loan payments to avoid loss of a primary home to foreclosure.Co-written by Sen. Johnny Isakson and Rep. Tom Graves, both Republicans from Georgia, the bill would allow owners to pull out up to $50,000. The money could be used in a lump sum to pay down the delinquent mortgage balance or to fill shortfalls caused by reductions of household income. It could also be used as part of loan modification agreements with lenders designed to avert a foreclosure. No matter how the money is used to resolve the mortgage delinquency, it would need to be spent within 120 days of receipt and could not exceed 50% of the funds in the retirement account.

It must be understood that this bill only exempts the 10% penalty the taxpayer would be required to pay income tax on the withdrawal.

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Mass Public Revolt Over Proposal to End Retirement Plan Fleecing

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The fiduciary standard for retirement plans will happen. Enough said.

Our democratic process worked beautifully in this case, says the Journal. The public was heard and the people got what they wanted – more retirement plan fleecing. How dare the DOL demand that financial advisers put the interests of their clients first when handling Americans’ hard earned retirement savings? Don’t the clients deserve to be heard from on this matter?  Thankfully, Democrats and Republicans, and financial lobbying groups like the Financial Roundtable and the Securities Industry and Financial Markets Association banded together in the public interest by objecting to this proposal, says the Journal – on its Opinion page. “Even the liberal Consumer Federation of Americaobjected.”Buried elsewhere in the Journal there is a little news (i.e., not opinion) article called “Delay on Pension Oversight” that tells a slightly different story. Here it is stated that the proposal met “heavy resistance on Wall Street, amid questions about its cost and the impact upon investors’ retirement choices.” No mention of mass public revolt in this article. Odd.

Although the fiduciary standard on retirement plans has been delayed, once it is made public the standard may become more stringent than first proposed.

Please comment or call to discuss how this affects you and your organization.

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Investment firms pulling out all stops against financial adviser rule change

WASHINGTON, DC - FEBRUARY 16:  U.S. Sen. Josep...
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It is well documented that 401(k) plan sold by insurance comapnies and stockbrokers tend to be the most expensive in the industry. These business models are designed to sell product to the plan participants once the plan is sold. Although not all insurance agents or stockbrokers are deceptive there is no assurance that the conflict of interests are in the best interest of the employee.

In a statement to The Hill, Phyllis Borzi, Labor’s assistant secretary for EBSA, said investigations by Labor, the Securities and Exchange Commission, the Government Accountability Officeand others show that conflicts of interest for financial advisers result in lower returns and higher fees for investors.“Conflicts of interest and a lack of accountability are widespread in the marketplace for retirement advisory services. An adviser’s compensation is often directly tied to the specific investment recommendations that he makes, and there is a real danger that the adviser’s recommendations will not be based solely on the customer’s interest, but instead will reflect the adviser’s own financial self-interest,” Borzi said.

“Simply put, we are seeking to protect the millions of employers and small-business owners, workers and IRA holders who rely on investment advice by working to address these conflicts. We think this effort has merit and we are committed to getting it right.”

The fact that both Democrats and Republicans are opposed to the fiduciary rule. Is this because the financial services industry is lobbying both sides of the aisle? Why?

Please comment or call to discuss.

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