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The Wharton 401(k) Loan Default Study: Documenting Unemployment's Unrecognized Penalties
Business of Benefits Link to more items from this source
Feb. 24, 2014
"Defaulting loans at the time of unemployment is a significant source of retirement 'leakage.' Perhaps even more importantly is the human cost ... [T]his traditional plan design imposes a severe financial hardship upon those who involuntarily lose their jobs, at a time when they can least afford it. The taxation on the forced deemed distribution and 10% penalty on loan defaults is especially cruel. Not only may it artificially inflate the marginal tax rate and impose taxes without a distribution to pay them; but then the penalty is paid regardless of the application of the marginal rate or deductions."

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