Broad Oak: your emotional support animal

Monday, July 23, 2012

IRS and pension fund managers robbing distressed Americans

A miserable twist of the knife: Americans are increasingly defaulting on pension loans, and the taxman and plan manager make money out of it all.

The 401(k) plan is a contribution-based pension for employees. Many such plans allow loans, often with restrictions as to their purpose (e.g. for college fees, medical expenses or housing); but Leo Kolivakis relays reports of an estimated $37 billion in annual defaults, as the great financial crisis continues to claim victims.

The worst of it is, when the borrower defaults, income tax is charged on the loan - plus (often) an extra penalty (presumably to the benefit of the plan manager):

"This can take you from a $6,000 loan to a wipe-out of $10,000 from your 401(k savings) ... and this is happening to people at the very worse times of their personal and financial lives."

3 comments:

Weekend Yachtsman said...

When it rains they take away your umbrella.

Banks were ever thus, and the State is not your friend.

No surprises here.

Nick Drew said...

This and, I suspect, even worse

James Higham said...

Yet I read at Bloomberg: "Now the economy's turned the corner ..."

Really?