Borrowing through the Future: 401(k) Loans and Their effects

Borrowing through the Future: 401(k) Loans and Their effects

The loans people take from their 401(k) pension plans, why they take these loans and what happens when these borrowers leave their jobs in a new paper titled, “Borrowing from the Future: 401(k) Plan Loans and Loan Defaults, ” Olivia S. Mitchell, Wharton professor of business economics and public policy, analyzes. The paper ended up being co-authored by Timothy (Jun) Lu from Peking University, HSBC company School, and Stephen P. Utkus and Jean A. Younger, both from Vanguard Center for Retirement analysis.

Knowledge@Wharton asked Mitchell to close out her research and talk about its implications for business professionals, consumers and regulators.

An transcript that is edited of discussion follows.

Knowledge@Wharton: Please briefly describe your quest.

Olivia Mitchell: My research in this region is centering on the loans that folks just just just take from their k that is 401 plans. It’s quite common for employers allowing loans through the retirement benefits, and in reality, we realize that at any offered time, about one 5th of a loan have been taken by all workers. More than a five-year period, up to 40% take loans. Therefore it is a practice that is common.

We now have examined why individuals just simply take loans, what the results are once they do, as well as in specific, what goes on once they terminate their jobs. At that time, they should spend back once again their loans in complete or incur tax plus a 10% penalty. Therefore, we’re worried about whether folks are utilizing their s that are 401(k piggy banking institutions. Continue reading “Borrowing through the Future: 401(k) Loans and Their effects”