401k Debit Card: Swipe Yourself to the Poorhouse

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john in March 5th, 2008

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Swipe yourself to the poorhouse!

So you have scrimped and saved. Done without some of life’s luxuries. You have managed to build up a nice little nest egg. You have plans to retire in comfort. And then it happened. You started using your shinny, new 401k debit card. Borrowing against your future.

So, where do I sign up!

According to the ReservePlus website, signing up is a simple 3 step process. You simply select the ReservePlus option within your participating company plan. Move desired funds into an dividend bearing account. And presto, you receive your new card. Swipe to your hearts content, or a least up to your new loan limit.

Everyone else is doing it, why can’t I?

Is it just me or does this sound like an absolutely crazy idea to anyone else? Let’s see. Now, digi-thirsty, consumer electronics lovers can satisfy that overwhelming urge to purchase that 60″ LCD, immediately. With their retirement money! Home equity tapped out? No problem! Just swipe and forget.

A brilliant Idea!

What will we think of next? A future’s market for….I don’t know… kidney transplants. That’s right! You agree to give up your left kidney at a set future date. In exchange you receive a lump sum TODAY, which you can then use to address that electronics driven euphoria. No, there isn’t really a kidney futures market. Sorry.

I’m only going to use it this one time, I promise.

I hope we as Americans will use better judgment than we have shown over the last several years. As if it were not bad enough that we have collectively sucked billions of dollars out of the value of our homes. Using our home equity like a lottery windfall. Now, we will begin siphoning off our retirement savings, to further quench our appetite for instant gratification.

At least in the past, borrowing against your 401k was somewhat complicated. One had to fill out paperwork and wait a week or two for the check. This debit card will make it much easier to justify in your mind, that impulse buy. No cooling off period. Just do it! Bad news for your retirement plans.

These fees are killing me!

To participate in this privilege will cost you. First there is the 10% early withdrawal penalty. Next, you will have to deal with Uncle Sam. And then there are those setup fees. And it looks like the interest will cost you Prime plus 2.9%. Bottom line. You will loose $30 - $40 out of every $100 borrowed, plus interest.

Now, the proponents of these cards point out that employees can withdraw money from an ATM and then pay it back at the end of month. Just like that. Just pay it back. Just like your credit cards, right? I’m not buying. How about you?