New Debit Card Borrows Against 401k

[nhboy]

"With the threat of a recession looming, many families are looking for ways to get some quick cash to make it through these hard times.

In a move that financial analysts are calling a dangerous gamble, one company is offering a debit card that lets you tap into your 401k savings.

Borrowing against your 401k isn't a new concept, but financial planners say making that money so easily accessible through a debit card greatly increases the potential danger. Money taken out of a 401k now could mean less money left for retirement."

MyFox Washington DC | New Debit Card Borrows Against 401k

 

[vraiblonde]

That is the dumbest freakin' thing I've ever heard. Draining your retirement savings so you don't have to tighten your belt!

Anyone who would do something like that is a moron and I have no sympathy for them when they're left high and dry at 65 because they pissed away their 401k on eating out and big screen TVs. And, PS, I don't want to pay for those dummies, either, but I'll bet that's exactly what will happen.

 

[Pandora]

That is the dumbest freakin' thing I've ever heard. Draining your retirement savings so you don't have to tighten your belt!

Anyone who would do something like that is a moron and I have no sympathy for them when they're left high and dry at 65 because they pissed away their 401k on eating out and big screen TVs. And, PS, I don't want to pay for those dummies, either, but I'll bet that's exactly what will happen.

Social Security will help them out when they retire.

 

[Aerogal]

Where's the federal madate to stop this!? They limit what you can put in but it's okay to deplete it so you become a burden to other taxpayers? Sounds like congress is working hard to put everyone they can in the poor house so the 'masses' demand socialism.

 

[vraiblonde]

They limit what you can put in but it's okay to deplete it so you become a burden to other taxpayers?

I don't care if they deplete their 401k - it's their money. But we know that they'll piss it away, be broke come retirement time, and the rest of us will have to foot the bill for them.

And you bring up a good point: why is there a limit as to how much I can put into my 401k annually?

 

[Sindy]

Hey, how many people do you think actually put in all they are allowed to into their 401K's? Ask 20 and you might find 1. The other 19 are only putting in 5%. Those are the same people living in the large houses with ARM's, new cars, and more crap than they know what to do with. I live well below my means, putting the max away every year. I want to retire and not end up on social security eating cat food or working until I look like the hunch back of Notre Dame. I don't sympathize with anyone who can't afford they houses they "bought", and the same idiots who will be cashing out their 401's, don't have much in there anyway, at least not enough to retire on.

Wonder if this company giving out these debit cards are informing these people that they are going to have to pay close to 50% in taxes and penalties?

 

[Booboo3604]

Ironically there are many like myself who put max into 401K because we know that we will never actually get to benefit from Social Security. Glad to know I am also paying into social security to support people who like Vrai said are wasting their money/401K's on eating out and big screens.

 

[vraiblonde]

Wonder if this company giving out these debit cards are informing these people that they are going to have to pay close to 50% in taxes and penalties?

I max out my 401k contributions.

And that's a good point above: when they take money out of their account via debit, isn't it then taxable?

 

[desertrat]

I max out my 401k contributions.

And that's a good point above: when they take money out of their account via debit, isn't it then taxable?

Maybe that's why the government doesn't mind. I don't see the big deal though, it's already not that hard to get $ out of those accounts or borrow against them.

 

[GWguy]

I max out my 401k contributions.

And that's a good point above: when they take money out of their account via debit, isn't it then taxable?

Depends. I have two different contributions in my 401k, pre-tax and post-tax. The money that has already been taxed can be withdrawn with no additional taxes taken out.

 

[Lugnut]

Hey, how many people do you think actually put in all they are allowed to into their 401K's? Ask 20 and you might find 1. The other 19 are only putting in 5%. Those are the same people living in the large houses with ARM's, new cars, and more crap than they know what to do with. I live well below my means, putting the max away every year. I want to retire and not end up on social security eating cat food or working until I look like the hunch back of Notre Dame. I don't sympathize with anyone who can't afford they houses they "bought", and the same idiots who will be cashing out their 401's, don't have much in there anyway, at least not enough to retire on.

Wonder if this company giving out these debit cards are informing these people that they are going to have to pay close to 50% in taxes and penalties?

#### that! I'm not waiting til I'm on oxygen to retire! I contribute to my 401K but the majority of the money I invest is placed so I can get to it earlier than 65 WITHOUT all those early withdrawl penalties.

My ass is going to be retired and on a carribean beach while I can still enjoy it!!

 

[vegmom]

My 401K plan limits you to 50% of your vested amount to borrow against, so you technically can't tap it out. You end up paying yourself back with interest. But the money from the loan balance is NOT working for you in the various funds while you are in process of paying it back.

You can also make "hardship" withdrawls for things like buying your first home or unpaid medical bills without paying penalties (still gets taxed though).

Taking money out of 401k should be a last resort. I contribute up to the maximum my company matches and invest the majority of it very agressivly. Where else am I going to get that kind of ROI ? Even when money has been tight I kept putting in the minimum to keep the ball rolling.

 

[Sindy]

You can only take out up to 50k in your 401.

Lugnut, You CAN retire at 55 and start withdrawing from your 401 without penalties. You don't have to wait until you are 65. I'm dreaming of the beach too, and it's not in St. Mary's county.

People using this to live off now before retirement are either desperate or very stupid. Yeah, bad things happen all the time, but those are the people doing the one time withdrawal, not the ones using debit cards on their 401k. I know some people who cash out everytime they switch jobs.

 

[awpitt]

I max out my 401k contributions.

And that's a good point above: when they take money out of their account via debit, isn't it then taxable?

It's not tataxable because you're taking out a loan with your 401K funds as collateral. You're not actually withdrawing from your 401K. Not that this makes it a good idea to use debit cards.

 

[vegmom]

It's not tataxable because you're taking out a loan with your 401K funds as collateral. You're not actually withdrawing from your 401K. Not that this makes it a good idea to use debit cards.

Your half right. When you borrow against your 401K they sell off shares to cover the loan amount and designate that money as part of a "loan fund" that you pay interest on. So instead of that money being in a nice fund earning you double digit returns it's set aside in a fund that you are paying yourself interest on.

To make things worse, your payroll deductions that are repaying the loan are taken out after taxes.

I unfortunatly had to borrow against mine years ago as a last resort.
If I had not been gawd awful desperate I would not have done it.

 

[vraiblonde]

It's not tataxable because you're taking out a loan with your 401K funds as collateral.

Would you pay interest on this loan? I didn't read the article. Because I'm lazy, I'm hoping you all did and can answer my questions.

 

[GWguy]

You can only take out up to 50k in your 401.

Lugnut, You CAN retire at 55 and start withdrawing from your 401 without penalties. You don't have to wait until you are 65. I'm dreaming of the beach too, and it's not in St. Mary's county.

People using this to live off now before retirement are either desperate or very stupid. Yeah, bad things happen all the time, but those are the people doing the one time withdrawal, not the ones using debit cards on their 401k. I know some people who cash out everytime they switch jobs.

Ours is 59.5 y/o before you can withdraw. I looked into it 'cause I want to retire at 55.

 

[awpitt]

Your half right. When you borrow against your 401K they sell off shares to cover the loan amount and designate that money as part of a "loan fund" that you pay interest on. So instead of that money being in a nice fund earning you double digit returns it's set aside in a fund that you are paying yourself interest on.

To make things worse, your payroll deductions that are repaying the loan are taken out after taxes.

I unfortunatly had to borrow against mine years ago as a last resort.
If I had not been gawd awful desperate I would not have done it.

Absolutely right. I forgot to mention that part.

 

[awpitt]

Would you pay interest on this loan?

Yes, and I'm pretty sure the interest goes to your 401K fund or at least some of it.

 

[czygvtwkr]

I have a few coworkers that put nothing into their TSP not even to get their matching.