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Borrowing from our retirement
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ATLANTA — The troubled economy has resulted in job losses, home foreclosures and tight credit. Faced with a financial emergency, many people scramble to find cash. At such times, the money in your qualified company retirement plan may seem like a great resource. Tapping into your retirement plan can be acceptable in the absence of other options.  Here’s a look at how to make the most of this option and mistakes to avoid.

Interest advantages
A retirement plan loan has a number of advantages over other borrowing options. First, instead of paying interest to a lender, you are actually paying interest to yourself, a much more rewarding prospect. In addition, the interest rate on such loans is typically lower than what you would pay on credit cards or other debt.

No credit check
It has been difficult for many people to get credit recently. That’s not a problem with your retirement plan because you are essentially the lender. There are no credit checks or negotiations necessary. The paperwork is relatively uncomplicated and you can arrange to have payments deducted from your paycheck, making it easy to pay the loan and incorporate into a budget.

Drawbacks to consider
While there are relative benefits to a retirement plan loan, there are also disadvantages. One major drawback is you lose the investment potential of money you borrow. Let’s say you have $5,000 in a plan, and during the coming year it will earn 5 percent, or $250. If you borrow that $5,000 from your retirement plan, you miss out on the chance to earn the $250. The lost earnings are a “hidden” cost of your loan.

The slippery slope
If you borrow from a retirement plan, it’s also important to avoid getting into the habit of treating the account as a source of cash. CPAs advise that setting up a retirement account should be the priority. The earlier you begin saving, the more time that your money has to grow. If you interfere with that growth by taking regular loans, you will cheat yourself out of what could amount to thousands of dollars in nest egg funds over time.

Borrow but don’t withdraw
After weighing the advantages and disadvantages, you may still decide to tap into your retirement. Remember, though, that with any tax-advantaged retirement account, it’s significantly better to take a loan rather than withdraw the funds outright. When you take a withdrawal before you reach the age of 59½, you will be subject to a 10 percent penalty on the amount and you will also have to pay income tax on it. If you withdraw $5,000, in other words, you will owe the Internal Revenue Service a $500 penalty as well as tax on that withdrawal.   

Consult your CPA
Many people are struggling with complicated financial decisions in the current economy. Remember that a CPA can help. He or she has the expertise to advise you on the best choices.
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Visit with children a real eye-opener
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One of my favorite activities as a state senator is when I get to speak to students at our local schools. This year, I spoke to third-grade students at May Howard Elementary and Marshpoint Elementary in Chatham County and Button Gwinnett Elementary in Liberty County.
The students from each of the schools had been studying civics and were familiar with the three branches of government — executive, judicial and legislative. I explained my role as a senator in the legislative process and told the children how the citizen legislature in the state of Georgia works.
Presenting each of the schools with a Georgia state flag, I explained the three principles for which the state flag stands — wisdom, justice and moderation — and had them recite the pledge to the flag with me. 
The students at all three schools were bright, respectful and well-disciplined — a tribute to their families and especially to their teachers, who had prepared the students for my visit with ideas for great questions.
The students in Ms. Hutchinson’s class at Marshpoint Elementary were impressive in singing the preamble to the Constitution during my visit. What a great way to learn such an important part of our nation’s history — another wonderful example of the great job our teachers are doing.
I was delighted last week to receive thank-you letters from some of the students. Here are excerpts from a few of their letters:
 
Dear Mr. Carter,
Thank you for taking the time out of your busy schedule to come speak to us. I learned so much! I learned that there are two kinds of Pledge of Allegiances. That is pretty cool.
Do you travel all over the world do you? I really like that you taught me more about the three branches of government.
— Megan
 
Dear Sen. Carter,
Thank you for telling us about your job and your favorite thing about your job. I liked the Georgia state flag. I still have more questions. Do you have to work on Saturday and Sunday? Are you the only one who makes the laws?
Yours truly,
Ryleigh 


Dear Sen. Buddy Carter,
Thank you for coming and letting us have a little bit of your time. I want you to know that I learned something new. The Georgia pledge! Justice, wisdom and modesty! Thanks again!
— Liam
 
Dear Sen. Buddy Carter,
Thank you for coming and helping us learn more about the government and some of your job. Thank you for giving us a Georgia flag. It was fun when you came. Thank you for giving us some questions so we could answer them.
P.S. Did you ride in a limousine? I was going to ask you a question but then I forgot. But now I remember. How many rooms are there where you work? You can send me a note if you can.
Your friend,
Erin
 
I’m uncertain whether the students learned as much from me during my visit as I learned from them. One thing that I was reminded of was the honesty that comes from the innocence of childhood. I wasn’t quite sure how to interpret some of the questions, such as the one asked in this letter:
 
Dear Sen. Carter,
I loved your speech. Thanks for coming to our school. I think my favorite part was when we held the flag. It was so fun! I have a question: How many people voted for you?
Sincerely,
Shelly
 
I also was more than a little concerned about a recurring question in the thank-you notes that was posed to me during one of my visits by a beautiful, brown-eyed girl who, with a very serious look on her face, asked “Did you ever get re-elected be-fore?”


What a great group of young people! My faith and hope in our future has been reassured. What an amazing job our families and teachers are doing on a daily basis to support and encourage our next generation. Thank you for your dedication to teaching our leaders of tomor-row.

Sen. Buddy Carter can be reached at Coverdell Legislative Office Building (C.L.O.B.) Room 301-A, Atlanta, GA, 30334. His Capitol office number is 404-656-5109

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