Congress is currently considering a bill that would permit 401(k) investors in danger of losing their primary home to foreclosure to use up to $50,000 or 50% of the balance, whichever is less, to prevent that from happening.

Investors would still owe taxes, but unlike hardship withdrawals, they would be excused from the IRS 10% penalty, under the proposed bill, called the HOME Act, or Hardship Outlays to protect Mortgage Equity Act. The investors would need to spend the money within 120 days.

The bill was written by two Georgia Congressmen, Sen. Johnny Isakson and Rep. Tom Graves.

Many financial advisers tell investors in need of fast cash to take out a loan rather than a hardship withdrawal, as the former is not taxed or penalized. Also, unlike hardship withdrawals, loans do not prohibit investors from making new contributions to their workplace retirement plan for six months.

There are reportedly hundreds of thousands of homes facing immediate foreclosure and another two million at risk.

-- This article first appeared on Money Management Executive.


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