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Treat your 401(k) like a nest egg, not a piggy bank

Jeremy Hobson: Well there's some new legislation on the table in the Senate that would limit the amount of money you can borrow from your 401(k) retirement plan.

It was introduced by Republican Mike Enzi and Democrat Herb Kohl, who say there's a $6.6 trillion gap between what Americans have saved for retirement and what they'll need.

For more let's bring in LA Times Consumer Columnist David Lazarus. Good morning.

David Lazarus: Good morning.

Hobson: Well first of all, tell us about this new legislation in Washington.

Lazarus: It's called the Savings Enhancement by Alleviating Leakage in 401(k) Savings Act. Oh my goodness, yes indeed. And what it's intended to do is basically make your 401(k) more of a nest egg and less of a piggy bank. And it does that by reducing the number of loans you can take from your 401(k) at any one time, and then making it less onerous to pay it back, so you can stay in the savings game.

Hobson: And how common is it for people to turn their 401(k)s into piggy banks?

Lazarus: Well according to Aon Hewitt, which is an HR firm: in 2010, what we saw was about 28 percent of 401(k) participants having an outstanding loan; that's up from 22 percent in 2005. The average loan out was about $8,000.

Hobson: And I assume that you do not think it's a good idea in general to dip into a 401(k)?

Lazarus: You assume correctly, my friend. Now look, 401(k)'s all about the future. It's all about investing in your retirement. The idea that you're going to borrow again -- while it might have immediate gratification for you -- is only robbing your future. It's something you want to be very careful about.

Hobson: But is there ever a situation when somebody comes to you and says, 'I'm going to dip into my 401(k) for this reason,' and you say, 'that's a good idea.'

Lazarus: Well I wouldn't say that's a good idea, but I would say I understand it. For example, let's say you lose your job, you've got to make a mortgage payment, you've got to make a car payment, you've got no other available funds -- well, then yes, there it is, and you're going to have to do what you've got to do. But generally speaking, Americans are bad savers. We need to be better at that game and we also need to plan more for our retirements. Because let's face it: Social Security, pensions, things like that might not be there for you; it's all about what you put into it and that's what a 401(k) is.

Hobson: So you wouldn't say, go ahead and use some of your 401(k) to buy a house, for example?

Lazarus: Oh, I would not say that at all. I would say, leave your 401(k) alone, and if anything, put more money into it.

Hobson: L.A. Times consumer columnist David Lazarus, thanks so much.

Lazarus: Thank you.

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