The 401(k) Mistake Too Many People Are Making

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May 6 (Bloomberg) -- Bloomberg's Richard Rubin reports on borrowing against retirement savings on Bloomberg Television's "In The Loop." (Source: Bloomberg)

Americans have been digging into their 401(k) posses for emergency cash.

Bloomberg news tax policy reporter joins us now.

Richard, i was disturbed when i was reading your story.

Americans are dipping into their 401(k) posses now to the tune of the liens of dollars?

Qwest you have two main groups.

Younger workers who switched jobs and just take the cash and either do not think about it or ignore it, and then you have older workers with no place else to turn.

Home equity drops, they cannot borrow against that.

They say, i am just willing to pay the bills he figure out when retirement comes.

Qwest penalties do not seem to be stopping these people.

No.

here is how the penalty works.

If you have a 401(k) and you take money out early, you have to pay taxes like you pay in retirement.

There is an additional 10% tax penalty on that.

You see that as accessing the money.

Think about it as a loan, it is a giant interest rate.

Qwest a huge interest-rate.

No other options?

Qwest what you have seen -- what you have seen since the financial market is house prices going down, which eliminate the possibility for people to get money out.

You look at the data from 2003-2007-now, you see home-equity loans drop.

Qwest that makes sense.

-- that makes sense.

They are now using their retirement accounts.

Is there anything the government is doing at all to try to maybe alleviate that?

People are doing that clearly not just because they have fun with the markets because they need to pay their bill.

Qwest you have policy and ideas in both directions.

During the 2000 a campaign, president obama offered to withdraw penalty free.

It was the kind of thing you saw some people propose.

Going the other way, you have the ways and means committee in the house as part of the broader tax reform bill, said there should be fewer exceptions to the penalty.

You have people thinking in both directions.

There is no real other vehicle that the government is set up for savings.

Everything is loaded onto the retirement account.

You should be incentivized to put away for the retirement account and then the money builds up and it becomes a pot out there you see.

Should you or should you not tap into it?

When you talk to experts out there, there is a sense there is not another, shorter, medium-term account that people are encouraged to have.

Qwest the troubling part of when i was reading your story is the other part of the group.

You mentioned young people do that and are penalized for it but they're in a 20's and can make it up here and see an increasing number of people in the 50's dipping into their 401(k) posses who will never get the money back.

Qwest the choice is, where else do they go?

You're absolutely seen people say, i will get the money now and then figure out retirement later and delay retirement.

People are making all types of choices when you have unemployment rates rise and the economy dropped in 2007, 2009, 2010. a lot of tough choices for a lot

This text has been automatically generated. It may not be 100% accurate.

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