Why the 401(k) debit card is a very bad idea
Posted
Jan 24 2008, 04:12 PM
by
Karen Datko
Rating:
Jeremy at Generation X Finance writes that the 401(k) debit card is "probably one of the worst ideas ever." This increasingly popular card allows you to tap your retirement account for any kind of purchase, including your silliest impulse buys. "That's right," Jeremy writes. "Now people can go shopping for that big-screen HDTV and instead of using a credit card or money they have in the bank, they can just swipe their 401(k) debit card and use those funds."
Many people, with good reason, consider their 401(k) a source of funds only as a last resort. If your employer's plan doesn't offer the ReservePlus card, you have to apply for a loan, and it's paid back with money automatically taken from your paycheck. With the card, you simply swipe it, and pay back the loan when you get a monthly bill, just like a credit card. "This means that it is actually possible for someone to miss payments and ultimately default on the loan while still employed," Jeremy says. "This could result in substantial taxes and penalties for an early withdrawal."
Financial Spiderplant calls the card "a new trap." Dave at Spiderplant says, "A 401(k) is not and should never be treated like an open line of credit, a checking account, or an account whose funds you can readily access with a card that you carry in your wallet for use at a moment's notice." At The Working Dollar, Todd writes, "To allow people quick and easy access to deplete their money from their retirement savings plan spells out retirement disaster."
