FINRA Warns About 401(k) Debit Cards
June 1, 2008
Concerned that too many cash-strapped Americans may tap their retirement plans prematurely, the Financial Industry Regulatory Authority (FINRA) has advised investors to be prudent in using the new 401(k) debit cards.
In an “Investor Alert” called “401(k) Debit Cards—Think Before You Swipe”, the organization warns that the “tempting convenience” of the cards “can have significant repercussions on the card user’s future retirement security.”
The maximum loan amount under IRS regulations is about $50,000 or 50% of the vested account balance, whichever is less, and employers must approve the amount a participant can borrow. As with a credit card, the participant is billed for monthly charges with a minimum payment due plus interest and fees.
“Regardless of how easy it might be to do, borrowing against your retirement savings should be a last resort—and done only in emergency situations,” said John Gannon, FNRA senior vice president for investor education.
“If a debit card is one of the options in your 401(k) plan, be mindful of the hazards that can come with using the card—from a smaller nest egg when you retire to a possible loan default that can deal a serious financial blow.”
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