Borrowing from retirement funds worries experts

NEW YORK — Investors' anxiety about the economy and rising prices for gas, food and most other things has some thinking about tapping retirement savings to ease their current financial troubles.

The Transamerica Center for Retirement Studies reports that the number of workers with loans outstanding on retirement accounts such as 401(k) plans rose to 18 percent in 2007, from 11 percent a year earlier. Anecdotal reports from financial advisers also have shown increases.

Some financial experts and lawmakers are concerned that investors grappling with spiraling credit card debt and mortgage payments are eyeing their retirement holdings as a potential financial lifeline without appreciating the gravity of tapping into something that should be all but inviolable.

Sen. Herb Kohl, D-Wis., chairman of the Senate Special Committee on Aging, has sent letters to nine overseers of 401(k) and retirement plans seeking details on how they disclose fees and risks associated with rolling over or tapping into retirement accounts. The letters highlight concerns that investors looking to paying down debt are making decisions without understanding tax consequences and potential loss of income.

The committee, which has previously examined 401(k) fees, expects to hold hearings next month. Staffers say it's too early to tell whether officials from big retirement services companies will be asked to testify.

The committee's interest mirrors that of some investment advisers. Dean Koh­mann, vice president of 401(k) services at Charles Schwab & Co. in Richfield, Ohio, notes that many investors who borrow or withdraw money from a retirement plan often buy only a short-term fix. Making a hardship withdrawal ­— for example, to stave off foreclosure — might keep some investors in a home only a few months longer, he notes. After that, the money removed from a retirement account is taxed as income and is no longer protected from creditors as it would have been.

Mark Davis, a principal with the financial consultancy Kravitz Davis Sansone in Los Angeles, said workers who borrow from their retirement accounts should at least continue making their regular contributions from each paycheck, not simply pay back what they owe. ”If you want to keep getting ahead you have to make both the loan payment and the ongoing contribution,“ he said.