Adjusted for inflation, the government collects 37 percent more money from early-withdrawal penalties than it did in 2003. Meanwhile, the amount of home-equity loans outstanding was $704 billion in 2013, down 38 percent from the 2007 peak, according to Federal Reserve data."They didn't have access to the home equity that they had in the past," [Reid] Cramer [of the New America Foundation] said. "And families looked around for what was left and they actually drained the value from the 401(k)."
Cindy Cromie…needed the money to rent a U-Haul and start a new life. Her employer, the University of Pittsburgh Medical Center, had outsourced Cromie's medical transcription work..,So, last year, at age 56, she moved about 90 miles from her home in Edinboro, Pennsylvania, into her mother's basement. To make ends meet as she moved and then quit the job, Cromie pulled out $2,767 from her retirement savings. Still unemployed, Cromie is trying to avoid tapping what's left of her retirement savings — $7,000.
This reads like a Dickens novel. Her retirement savings, in her mid 50′s, were less than $10K but she tapped 1/4th of that. She had to pay a 10% tax penalty plus the funds were treated as ordinary income. In contrast, the executive who outsourced her job probably has investments that will be treated as long-term capital gains and taxed at a much lower rate and the people managing her paltry retirement fund are probably taxed at carried interest rates too.