What do you guys think of the "Emergency 401k Button"

[Captain Save]

I think it's a good idea since people are responsible for their own savings.. because at the end of the day .. people who save are the ones who will have to front the money for these emergency handouts.. by paying taxes or by your dollar being worth less.
like any idea though .. you can't solve all problem as many people don't have a 401k ... and also seein that most people are in stocks ... during a crisis .. stocks take a major hit and you are compounding that loss by withdrawing.

this is what i'm referring to

https://401kspecialistmag.com/forgo-401k-early-withdrawal-penalty-wsj/

[alliecat79]

I think it's an excellent idea. Retirement savings isn't going to be helpful if massive amounts of people are out of work. While I have good job stability, my husband is realizing he may soon be out of a job if his company isn't doing enough business during this time to stay open. Taking an early withdrawal from the 401K or at least having that option in the event we are struggling (I do think we should be fine), would at least be a small relief in the short term.

[kork13]

Extremely short-sighted. This will encourage people to drain their retirement accounts at the market's lowest point in years, wiping out years of growth. So even though they're not officially getting taxed/penalized on that money, they're still losing the same 30+% of their money by pulling it it early. Whatever they've slowly built over years & decades will be decimated for the rest of their lives during a 1-month-old crisis.

[Jluke]

Terrible idea.

promotes buy high, sell low. Promotes being irresponsible and irrational towards retirement savings.

give more incentive to tap retirement (no penalties, no taxes, increase contribution limits to make up for the withdrawal etc) and I might consider it.

[TexasHusker]

I like it. I have $35K in IRAs just sitting in cash that would help me pay my employees. If I withdraw it right now, I take a 40% hit right off the top.

[disneysteve]

Very mixed feelings. I'm generally of the belief that retirement money is for retirement, however in the event of a catastrophic need, it can be a last resort source of funds. Obviously, a lot of people are going to be experiencing catastrophic stuff in the coming weeks and months. I'm okay with there being some relaxation of the penalties to access retirement money. I just worry that if they make it too easy, people will dip into it more than absolutely necessary. The number of people who already cash out their 401k every time they change jobs or need cash for something even with the existing penalty is disturbingly high. This will just make it far worse. People will suck the money out to smooth over short term challenges at the expense of their long term well being. I don't think there's any actually good answer here.

[Captain Save]

Extremely short-sighted. This will encourage people to drain their retirement accounts at the market's lowest point in years, wiping out years of growth. So even though they're not officially getting taxed/penalized on that money, they're still losing the same 30+% of their money by pulling it it early. Whatever they've slowly built over years & decades will be decimated for the rest of their lives during a 1-month-old crisis.

I don't believe there is a right or wrong answer to my question .. .but I do think both yourself and kork13 are looking at it strictly from a retirement savings perspective.. and of course it's not the best thing to boost your retirement income.. but that's not the problem we're trying to solve..

IMO .. most of these retirement accounts would be doomed one way or another.. this at least make sure the dollar doesn't go in the tank.. . at least not for a little while .. I sitll think eventually there will be something to save people from their bad retirement savings habit unfortunately.

[kork13]

I guess we just agree to disagree. I don't buy the doom and gloom mindset, so I'm still looking long term. I have no doubts in my mind that the American & global economy will recover just fine, so there's little reason to panic & cash everything in to cling on to cash (that you believe is going to become worthless anyway....?)

[disneysteve]

I guess we just agree to disagree. I don't buy the doom and gloom mindset, so I'm still looking long term. I have no doubts in my mind that the American & global economy will recover just fine, so there's little reason to panic & cash everything in to cling on to cash (that you believe is going to become worthless anyway....?)

I think the point is that for folks who are suddenly out of work with zero income to be able to access what might be their only significant savings. The longer this drags on, the more people will fall behind on bills, the rent/mortgage, car payments, etc. Some jobs won't be coming back because the businesses fail as a result of being closed for weeks. Having a nice retirement stash is a great thing, but not if you have to choose between that and eviction.

As I said, there's no good answer here.

[~bs]

i think there should be stronger limits on 401k loans and withdrawals before retirement actually, while doing away with the penalties. as it stands right now, people pull money early and take out loans for any sort of reason. they just have to make up a good reason, and the system allows them to do it.

[~bs]

I think the point is that for folks who are suddenly out of work with zero income to be able to access what might be their only significant savings. The longer this drags on, the more people will fall behind on bills, the rent/mortgage, car payments, etc. Some jobs won't be coming back because the businesses fail as a result of being closed for weeks. Having a nice retirement stash is a great thing, but not if you have to choose between that and eviction.

As I said, there's no good answer here.

True.... but the feds and states are acting to shore up unemployment, so the bare necessity bills should be able to get paid to survive.

My state pays out $2500/month max, this amount will likely go up if the feds kick in aid. If an individual has large outstanding debts, they probably can't be helped no matter what. But 2500/month is enough to pay a decent amount of rent and keep food on the table and pay a car bill.

1400 rent
300 car bill
800 everything else

[disneysteve]

True.... but the feds and states are acting to shore up unemployment, so the bare necessity bills should be able to get paid to survive.

I hope so. I don't think people should be cashing out 401k money either. That should be an absolute last resort.

[james.hendrickson]

To pipe up here - in principle 401(k) funds belong the to account holder. In principle people should be free to make their own choices with their own money.

[~bs]

I hope so. I don't think people should be cashing out 401k money either. That should be an absolute last resort.

i'm on our company's 401k/profit sharing plan committee, in charge of making decisions for those plans. unfortunately it tends not to be the last resort. im pretty opposed to using the funds except for dire needs... about to be evicted or for severe medical emergencies.

To pipe up here - in principle 401(k) funds belong the to account holder. In principle people should be free to make their own choices with their own money.

In principal, once the funds are allocated to a 401k plan and eligible for favorable tax treatment, they are subject to rules and regulations of the law governing the plan, whose purpose s preparing people for retirement. If the individual wanted the freedom to make whatever choices they want to with their own money, they should invest in a normal taxable account. If you think you might want to use the money for hookers and blow for your child's upcoming 1st birthday party, then you shouldn't be allocating those funds into the 401k plan.

[disneysteve]

To pipe up here - in principle 401(k) funds belong the to account holder. In principle people should be free to make their own choices with their own money.

People are free to make their own choices. They chose to invest in a 401k. The same goes for a Roth or 529 or any other restricted investment, even a CD. There are terms and conditions and penalties for early withdrawal, as there should be. That doesn't mean you can't take the money out. It just means there will be a price to pay if you do.