Using 401(k) Plans for Fiscal Stimulus

Not enough!

I'm not poor, I'm not rich, I'm in the middle! I don't think that 12,000 is enough to help. the amount that should be allowed to be removed, with no penalty - and tax free should be at least 30,000. If someone does a profile of the middle income US tax payers- we are struggling with kids in college, mortgages, etc. We have accumulated a nice 401k but are going in deep debt with school loans and credit card debt. We need our 401k's 30,000 or more to get out of this whole and we can begin spending again. Right now, we stay at home, don't spend anything or go anywhere except to the grocery store to get the basics. We are scared to death! We have worked hard to get here - only to go - OH MY GOD, what happened? HELP US!!!

Kathy Stone of IL @ Feb 07, 2009 08:30:17 AM

Consequences?

Most 401K savings is in the form of stocks and bonds. It's certainly not in the form of unused dollar bills sitting in a vault somewhere.

So what is going to happen when the public tries to sell $120 billion in stocks in less than three months? How will that affect the money supply, and what will it do to the stock market?

Yeah, I know, we're just playing intellectual games here. But if we're going to do that, let's at least be *intellectual* about it.

Kent G. Budge of NM @ Jan 24, 2008 15:22:58 PM

401(k) withdrawals bad idea

Jimmy P.

I enjoy your blog but this has to be one of the dumbest ideas to come down the pike in a long time. There are already provisions for emergency retirement account withdrawals so why encourage raiding of retirement accounts? Most folks don't have near enough saved. Also, withdrawals would suck money out of the stock market further depressing stocks.

- Eric Tyson

Syndicated Columnist

Best-selling author of Investing for Dummies (Wiley)

Eric Tyson of @ Jan 24, 2008 09:47:31 AM

Venture capitalist-blogger John Ellis offers up an original fiscal stimulus plan:

I think allowing one to borrow "tax free" from a 401(k) is an excellent idea for an immediate "fix" but for the long term and to appease those who had good credit and paid more for a "fixed loan" here's an idea.

Freeze ARM Loans for five years and add any back payment due plus resonable delincquent charges to the mortgage. Then add the difference of what the loan payments would have been had it not been an ARM loan with a "teaser" rate, rather what the fixed rate was back when the loan was originated and add this to the mortgage each month. It shoul;d be a lot less than allowing the ARM variable clause to kick the interest up. This should quiet the complaints of those who opted for higher "fixed" loans because their subprime mortgage brethern aren't getting a free lunch or ride.

Next, to compensate the Lender and still its moans of poverty give it a small fraction of the equity build up when the home is sold. This should quiet the whinning of the Lenders who help create the mess by offering ARMs and piggy back loans etc.

Voila, now the home owner has no delinquencies, the same payments and if and when his/her equity accumulates someday he/she will have to relincquish a portion of that equity to the Lender.

Thomas Phelan of CO @ Jan 23, 2008 19:35:13 PM

I don't think that will work very well...

Interesting. Here are my problems with that:

1. I'm rich (well relatively -- I have at least some savings). I'll take the opportunity to take money out of my 401k tax-free, and put it into a taxable savings account. I'll do the same with my wives. That gives me $24K of tax-free money! I won't spend any of it, I'll plan on using it in the future for early retirement.

2. Poor people don't have 401k plans. The people who will spend the money won't have access to it.

3. Let's say 50M people each take $12,000 out of their respective 401ks. That giant whooshing sound is $600 billion of capitalization being removed from the stock market. All at once. Obviously that's a simplification, but you get the idea. Remind me how that *stabilizes* the market?

anonymous of OR @ Jan 23, 2008 18:33:37 PM

really think somone of status should propose this to the whitehouse. Awesome idea.

MARTIN A HEALEY of PA @ Jan 23, 2008 17:38:55 PM