Who’s that Tapping at my 401(k)?

Oh, it’s me!

As the credit crunch cuts deeper into homeowner’s wallets, and as they shell out more cash to either prevent foreclosure or meet the new, larger payments they’re facing after mortgage resets (not to mention the lousy economic situation we’re in), Americans are tapping into their sacred 401(k)s and other retirement plans.

With the tightening of credit across the country, and home equity hitting the toilet, Americans are finding it harder to gain access to the good old greenback. And unfortunately for them, that means looking to alternative sources of cash, including their retirement plans, which often penalize for early withdrawal.

Retirement plan providers around the country are reporting increased loans against retirement plans by their owners, a dramatic increase of 11% from 2006 to 2007. Normally you might see such withdrawals for medical emergencies and the like, but these days withdrawals from 401(k)s and similar plans are being tapped for a lot of other expenses consumers are facing that they normally may not have faced.

What this means is that the process of saving for retirement is taking a hit, which will likely impact when and how comfortably these distressed, cash-strapped people will be able to retire.

Another affect of borrowing against a 401(k) right now is that the stock market has tanked over the past few months, making the retirement amount that much less.

Analysts have found a definite correlation between foreclosure rates and areas around the country where workers are tapping into their 401(k)s and retirement plans. A bad move, sure, but likely not one most are taking lightly.