On behalf of Law Offices of Mark M. Kratter, LLC on October 20, 2011
Connecticut readers may be interested in learning that two members of Congress from Georgia have introduced legislation they say is designed to help some homeowners avoid foreclosure, while also costing the government nothing. The legislation revolves around the right of taxpayers to withdraw funds from their 401(k) retirement accounts for application toward mortgage indebtedness. The proposed law would allow 401(k) funds to be used for certain foreclosure expenses without exposing the individual to the 10 percent federal tax penalty for early withdrawal. The foreclosure bill, however, comes with a lot of conditions.
No more than $50,000 may be withdrawn, and the total amount withdrawn cannot be more than 50 percent of the 401(k) balance. Individuals would still be responsible for income taxes on the amount taken and would only escape the federal tax penalty. Also, when a withdrawal is made, no further contributions to the 401(k) may be made for a minimum of six months.
Others do not see the proposal as coming without cost and suggest that homeowners should tread carefully before leaping at the opportunity presented. Observers note it is far better to take a loan from a 401(k), because the interest accrued is simply being paid back to the 401(k) owner. Also, the loan comes with no tax consequences as long as it is properly made. They further note that, even in 401(k) programs where borrowing is not permitted, a "hardship withdrawal" is possible. That, however, comes with stricter guidelines and also requires payment of the federal tax penalty.
These are not easy decisions. Those people who are fighting foreclosure may well benefit from consulting an attorney devoted to helping individuals and families solve their debt relief problems. In Connecticut, a lawyer experienced in bankruptcy law and procedures can answer important questions and help devise a plan designed to achieve financial stability once again.
Source: The Courant, "Proposed HOME Act Could Save Distressed Borrowers," Oct. 15, 2011
