Should I Get A 401(k) ATM Card?

Just in time to compliment your subprime mortgage comes the 401(k) ATM card.  Should you get one?  Probably not!

In an article on street.com entitled:  “Just Put It on My 401(k) Debit Card”  street.com editorial assistant, Simone Baribeau  discusses this new way of borrowing against your retirement and your future.

The card, called  a ReservePlus card, is issued by Reserve Solutions.

Instead of a payroll deduction, participants are billed directly, as would happen with a credit card. 

While these 401(k) ATM cards are a good thing for employers that no longer have to act as a loan or mortgage company, these cards are a bad idea for the consumer.

First, 401(k) loans have traditionally been loans of last resort and are usually only taken out following a great deal of thought by the employee .

Second, 401(k) loans are usually taken out for a specific purpose for things such as medical care, home improvements or educational expenses.  With the ATM card comes the real risk of retirement funds being used for day to day purchases, or even worse, impulse purchases. 

Third, Street.com reports that the interest rate on ReservePlus loans is 2.9% higher than the prime rate, which is higher than traditional loans, and employees pay an initial set-up fee.

Before you make the decision to borrow against your retirement, whether with a traditional retirement plan loan or with an ATM card, it is a good idea to speak with an attorney to review your overall financial picture to see if there are other alternatives to such a drastic loan.