Don't borrow from your 401(k) Posted by money mom at 01/28/08 11:24 AM

Monday's Tip from Money Mom - Avoid a Debit Card Tied to Your 401(k).

Money Mom just heard about a truly bad idea - a debit card that pulls money straight from your "qualified retirement plan" such as a 401(k). You spend money for everyday purchases using the debit card, but with every purchase you are borrowing a bit more money from your retirement account.

Borrowing from your retirement account reduces the amount of your money that is working for you while you are in your working years. Most of us already are not saving enough for retirement, and we need whatever we have saved to be working for us.

Using a debit card to borrow money is a bad idea. A well thought out plan to borrow for a specific purpose such as a college tuition bill is very different from having instant access to borrow from your retirement fund with a debit card.

If your employer offers you a debit card tied to your 401(k), just say "no thanks."

comments (1)

1 Posted by Jess at 04/16/08 12:23 PM

Yes, but if your 401K is making less than the interest you will be paying back on the 401K loan over 5 years,what is the harm in that? The 401K will make more money with us paying back the loan than if we never took one out...

Something to think about...