Corporate & Securities Law

Securities Regulator Urges Great Caution In Using 401(k) Debit Cards

By James Eccleston

Many Americans tap into their retirement savings before they retire, potentially harming their efforts to provide for a financially secure future according to a recent Investor Alert issued by FINRA.

With the advent of a recent product, the 401(k) debit card, borrowing from a retirement savings account is as easy as swiping and spending.  These cards are often marketed as ideal for employers whose workforce include young, seasonal, transitory, or union workers.

FINRA has issued this Alert to inform investors about the potential pitfalls of 401(k) debit cards.  Although they may seem to be an attractive feature of some 401(k) plans, taking money out of your retirement savings, even for a short period of time, can have enormous repercussions for your retirement security - particulary if you never put the money back.

The Alert is available at www.FINRA.org.  The bottom line, FINRA states, is borrow as a last resort.  Regardless of how easy it might be to do, borrowing against your retirement savings should be a last, not a first, resort - and done only in emergency situations.  If the 401(k) debit card is one of your options, be particularly mindful of the pitfalls that come with the card's use - from a smaller nest egg to a potential loan default that can deal a serious financial blow.  Remember that with every swipe comes the potential to wipe out a portion of your hard-earned retirement savings.

Source:  FINRA Investor Alert

Full post as published by FinancialCounsel on June 10, 2008 (boomark / email).