I have been making "early" distributions from my 410ks, to one degree or another, since having been laid off from full time work in 2003. Although I have held a part-time, freelance position since April 2005, I have been obliged to raid my retirement savings to the point where it ultimately shielded me from the same sharp contraction many people experienced in the second half of 2008 -- simply because I had already depleted nearly all of my stock funds. Fortunately, I have a small amount let in two money market and straight interest bearing accounts, as well as an insurance policy, but those may well not last me much beyond the middle of this year.

(I could use some help preparing for that circumstance. I'm not sure which direction to turn even just for the most pertinent and useful information. But that's not my main point, so please continue reading.)

I don't object to paying the income tax on the 401k, as it has never been taxed as income.

Perhaps I wouldn't be in the shape I find myself if understanding finances came easier to me, but I couldn't even tell you whether I'd want the original contribution amounts to be taxed separately from the interest or dividends (capital gains), and whether it ought to be possible to deduct net losses in some way. I don't even know if a typical fund keeps track of that information.

As far as the penalties go, however, I have no idea what the reason was for originally including a 10 percent slap on the wrist (or charge for interest the govt. didn't earn). There should have been a better and broader structure to allow for exemption of necessary spending. I understand that it's possible to deduct amounts for certain expenditures (for instance health insurance costs, if you meet certain conditions). But the overall cost of living does not make the list; rent/mortgage and food are not accounted for.

I think one helpful stimulus that would be a rebate of all 401k penalties paid over some short recent time frame, such as since (I mean including) the 2001 tax year, or the 2004 tax year -- in addition to temporarily removing the penalty portion for either an open-ended time frame, or perhaps through the 2010 tax year?

By that time, I would personally be spared the penalty anyway. Ironically, my funds will probably be expended within 18-24 months of when the penalty would stop being assessed due to my age.

Unless I find that full-time job. So now, I think I'll go over to the Jobs link and drop off my resume!

I hope this comment is read, and given serious consideration. Not only would this action be very helpful to many people in a direct financial manner, it would indicate thorough execution of (what I believe are) the aims of the administration. And it ought to generate genuine appreciation and support in return, by ensuring that an increasingly overlooked, marginalized -- and nervous -- middle class perceives that something they contributed via taxes was returned with a sort of "Thank you, but you need this more than we do right now" kind of message.

[[ And, PLEASE, close tax loopholes! Tighten them for corporations, but shut them down entirely for ALL individuals. (Just a small extra task for you while you're already busy in the tax code -- plus you'll need to ensure enforcement.) ]]

Thank you.

rak / Rob

We need to do everything possible to push this through. Even after the market collaspe there is still 6 Trillion Dollars in 401k plans.  This could potentially be a 3 Trillion Dollar stimulus plan paid for by individuals and not tax payers.