When the gas tank is empty, the mortgage is due, or your spouse’s job has just been cut, it’s natural to search everywhere for the cash to keep up financially. That’s when tapping into your retirement nest egg can become increasingly tempting—especially when it’s as easy as swiping a card at the cash register. And that’s exactly what the 401(k) debit card will let you do.
But not without some controversy.
In recent weeks, financial industry overseers have warned consumers that using the debit card can result in paying excessive fees, spending retirement savings on unnecessary expenses, and draining accounts intended to be a retirement safety net. The U.S. Senate Special Committee on Aging has also discussed the issue in hearings, and two senators have introduced legislation to prohibit employers from offering the cards to employees who have 401(k) accounts.
But why such a strong reaction against this particular way of borrowing against your 401(k) funds at a time when the economy is in turmoil, banks are tightening credit, and your home equity is rapidly deflating?