Reserve Management Corp (RMC) is offering a service to employees that allows debit cards to be linked to 401(k) plans, for easy withdrawal of funds. Their Chairman, Bruce R. Bent, justified this offering by saying that they encourage employees to sign up for retirement accounts and that they reduce the dollar amount of loans taken out against them". Mr. Bent also said in an interview that " the card program is extremely helpful to attracting lower-income and younger people into the 401(k) plans" and enabling them to "contribute more amounts because they have access to their funds." Reserve Solutions, the unit that runs the program, takes a 401(k) allocation into a money market account, which earns interest while being available for debit card withdrawals. For example, facing medical expenses totalling several thousand dollars, an account holder could pay smaller initial amounts with debit-card loans instead of taking out one loan up-front to cover the whole amount.

Is it me, or are there more holes in this argument than in Swiss cheese? Firstly borrowing from your 401K is like borrowing against your financial future. It is something you need to carefully think about because of the ramifications like losing the benefit of compounding, tax consequences, transaction fees and loss of any employer match from not contributing. What's even worse is that if you default and can't pay back borrowed funds you get hit with high penalties and your credit records get shot. For now, Debit cards mean that folks must have money in the account to withdraw funds. Though, how long before credit cards are introduced with the limit determined based on what's in your retirement account. In a society where saving and credit is already such a problem, is this something we want to expose our "lower-income and younger people" to? Read more....

 

Submitted: Jul 18, 2008    Views: 118    Comments: 0    Likes: 1   


View Article: http://www.savingtoinvest.com/2008/07/debit-cards-linked-to-your-40...



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