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How to Boost Economy

March 08, 1992

Section 72(p) of the Internal Revenue Code currently permits employees to borrow up to 50% of their vested balance in defined contribution plans (401Ks, etc.) for use as equity funds to buy a home. These loans, which cannot exceed $50,000, are repayable over 15 years.

Essentially, employees are borrowing their own money. They have selected a home as a retirement investment with a portion of their funds rather than put their entire balance in stocks, bonds and money market accounts. By the time they retire, the loan will be paid off and the principal of their retirement account is fully restored.

If Congress would recognize the permanent benefit of this provision to the economy and permit the funds to be borrowed at the Federal Funds Rate (currently 3 1/2%), we would see a surge in home purchases that would surpass the current refinancing frenzy. In turn, this would impact almost every other sector of the economy and immediately provide jobs for the unemployed.

This provision should be expanded to cover IRAs in lieu of (or in addition to) the "penalty-free" withdrawals as currently proposed.

As it is, many employees cannot access these retirement savings accounts and currently maintain their funds in a money market account earning 4%.

ROBERT W. REYNOLDS

San Marino

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