A plea to our president: unlock the 401K

Some days ago I wrote on a revival in entrepreneurship in the US largely initiated by massive job losses and corporate failures.  In the article I briefly mentioned Retirement to Franchise Transfer Plans, a means of using one’s 401K retirement to purchase stock in a franchise.  This is in essence a stock transfer, and no penalties are incurred.  Oddly, my Google search on that phrase only turned up 5 distinct hits!  That leads me to assume the option may not be exercised by many.

Maybe that last detail has to do with low awareness, or perhaps many cannot realistically employ it.  This alternative funding vehicle may work well for those with monster 401Ks, and a desire to fund their own business, but it is useless for someone like myself with a tiny (and shrinking) tax-deferred investment along with no access to other working capital.

So I’d like to propose something blasphemous to our current national leadership: create a temporary moratorium on 401K and/or IRA early withdrawal penalties and taxes (note: see update below for an embarrassing admission).  Enact it for perhaps no more than a year or two.  Let anyone, regardless of motive, withdraw as much as they would need in order to help them through these tough times, without such withdrawals impacting them in any other way.  Here are my arguing points:

  • 401Ks are being steadily eroded by collapsing investments
  • The money could enable holders to put off use of some social services
  • The freed funds could help the economy recover faster
  • It’s my money and I need it now!

Okay, the last one was just a nod to a series of annoying television commercials, but it certainly sums up my sentiments.

Some have taken loans out on their 401Ks that they may be unable to pay.  I think that current rules requiring prompt repayment after job termination should be relaxed.  Let people pay lesser amounts or nothing at all until they are again gainfully employed.

And yes, this would be an act of desperation… but as I monitor the US job loss numbers and combine that with my disappointing re-employment prospects, I see such acts as possibly the only hope for many.  If anyone is uncomfortable with leaving this proposal wide open, then maybe it could be restricted to only those suffering catastrophic loss of some sort.  I’ll let the politicos worry over details.

Regardless, desperate times often do call for desperate measures.  I am looking to our leaders, especially President Obama, to recognize the need and opportunity to take some radical steps toward restoring this nation.  I realize this is commonly seen as a bad idea, but again, I am addressing worst case.  I welcome all comments on this proposal, and please link it if you agree so we can get the word out!  I’m actually expecting some scoldings though…

Caveat: lest someone think I suggest this cavalierly, let me assure everyone I do not.  I realize that cashing out of a retirement plan early, even partially, is not at all advisable under normal circumstances.  I am only suggesting that those forced into such unfortunate actions are already being penalized enough, and that troubled times like these should call for a waiver on additional penalty.

Update: I was not aware that at least part of my proposal was already in Obama’s rescue plan, but it is discussed here and here.

One response to “A plea to our president: unlock the 401K

  1. I agree whole heartedly….Let us bail ourselves out of this crisis.If we can relieve our debt load in the now,those of us who are still working can put our money back purchasing goods and services instead of paying down debt.We are not asking for a complete handout,we just want to unburden ourselves so that we can put our capital to work in this depressed economy.As it is,to pay down our debt we will need to cut our cable tv,cell phones,high speed internet,entertainment and further injure the job market by not spending.This is an easy way to get money flowing back in to the economy without costing the government too much….please make this happen soon!

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