Raiding the Retirement Stash

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Here's what's wrong with borrowing from your retirement fund, as laid out in the report:

· When you take the money out of your retirement account, you lose the possibility of investment earnings.

· You may be paying yourself back with interest, but that interest is at a below-market rate of return.

· If you fail to pay back the loan, you will have to pay taxes on what you took out in addition to a 10 percent penalty for the early withdrawal.

· You pay back the money in after-tax dollars.

"When a participant can use his or her 401(k) to make everyday purchases like buying a cup of coffee, clearly that is a gross distortion of the plan's intended use," Herb Kohl (D-Wis.), chairman of the Senate committee, said in a statement.

I've worked with a lot of people in debt, and not a single person recklessly robbed his or her retirement account to pay for a latte. It's not conspicuous consumption that is pushing up the numbers of 401(k) loans. It's more likely the result of health problems or job losses.

But Kohl and others are right to be concerned.

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