If ReservePlus realizes it’s dream,

http://www.reserveplus.com/

soon everyone with a 401K retirement account can use a plastic card to access a credit line backed by their 401K retirement account assets.

Employees of companies adopting Reserve's service can transfer a portion of their retirement assets to a ReservePlus interest bearing account and use the card – euphemistically called a "401K Debit Card" – at ATMs to withdraw cash or at thousands of merchants to buy stuff.

Employees receive statements by mail or online detailing transactions, balance,  interest charged , and where to mail their minimum required monthly payment.

Here’s a question… Is this a debit card… or a secured credit card, which activates a 401K account loan? If you answered, "credit card," go to the head of the class.

The difference between a "401K Debit Card" loan and a traditional 401K loan is you generally wouldn’t use a traditional 401K (hardship) loan to buy gas; albeit $3.59/gallon gas is a hardship for many. Other differences include setup fees, variable interest rates -- 2.9% HIGHER than the prime rate -- and not all of the interest paid by the user is returned to their 401K… ReservePlus gets a cut.

One other difference, touted as a benefit by ReservePlus, is you don't have to pay any outstanding loan back in 60 or 90 days if you're terminated by your employer. Instead, you get up to 5 years.

With both types of loans, you're still subject to the 10% early distribution tax penalty if you default, plus income taxes on the amount of loan outstanding at the time of default, and both loans damage your retirement account growth.

Google “401K Debit Card” and you’ll see outrage by many personal finance commentators at this apparent assault on retirement assets. I don’t think it’s a good idea, either. It’s yet another stupid debt trick.

But I think there is a larger point...

The demise of company-funded pensions and rise of 401Ks transfers the bulk of the retirement funding burden to employee paychecks. Any hope of having sufficient assets at retirement requires a high contribution level, which exacts a heavy toll when living expenses and debt payments are factored in. This is undoubtedly one of the reasons why roughly half of all working Americans don't participate in defined contribution --i.e., 401K-- retirement plans.

It’s also likely the reason why 401Ks are the ONLY retirement accounts with borrowing provisions. For many employees, funding their own retirement is unaffordable.

There is a simple way to reduce the financial stress of contributing to your retirement security. By rapidly paying off all of your debts you create additional income to use to fund your retirement. An added benefit is you cut your cost of living in half -- no more debt payments -- so you're at less risk of falling victim to a stupid debt trick... and ruining your retirement.

 Do you participate in a 401K? Is it a cashflow hardship? Have you ever borrowed from the account?

 

-------------------
Greg Moore is the Creator of the Wealth Building System
'DebtIntoWealth -- Lessons from My Journey to Debt Freedom'

   "My husband is due to retire from the Navy in just two
    years at a young 42 years old, and right around then,
    using your system, we'll be completely debt free, which
    means  we could literally never have to work another day,
    if we choose."    -- Andrea Davis, South Korea

Get Lesson 1 FREE, today.  Click:
http://www.debtintowealth.com/debttrap.html

Is there no end to the devious antics of the credit industry?

I've never had a 401k, when they became available I didn't understand how they worked. I remember one time my employer sent someone to talk one on one with employees on there free time about investments like this but somehow I wasn't trusting the guy - he was too pushy - and like I said I didn't understand what he was saying anyway. And I didn't have the money available to even seriously consider it. I was already paying into a pension, and my husband had a good pension plan, so the interest in them was fleeting. It may not have been the wisest move not to have saved more somehow, but we are doing okay. Edey

elovestea:

Is there no end to the devious antics of the credit industry?

Apparently not!

I'm retired at the moment (planning to start a new job soon just for toys) and we're somewhat insulated from the realities that others now must face because we have a fully funded defined benefit pension plan with 100% COLAs. I'm very much aware of how rare that is now. But I also started a deferred compensation account (similar to 401k) years ago and we don't plan to touch that for about another ten years.

But I would never consider any type of credit/debit card backed by that account. I think in another 20-40 years a lot of people are going to be eating Alpo and living under bridges if many of them bite on something like that.

People who can't stand to delay gratification are this business's lawful target. Hope they enjoy their plasma TVs.

oh good grief! As if we need more legitimate ways to be stupid with our money!

When I met my hubs 12 years ago he had just started a new job. He told me how he chose not to be part of the 401K because he couldn't afford it, lol, and I bugged him until he signed up for it, at least up to the minimum for matching $$, he kept adding more until he was putting 15 % in and now that he's, er, older, he gets to put more in there for catch up. It has been the most amazing thing to watch it grow and grow, good times and bad. It is a blessing. And one of the reasons he didn't think he needed it was because the company had a pension plan...but due to economic worries, they froze it last year so no new employees would get it and was frozen at the level it was for each current employee which for my husband was about $5000 per year in retirement. That is a nice addition to all the other investments and savings but is NOT enough to live off. Good grief. From what I've read no financial people recommend using  401K's for education or housing unless there is no other alternative - like saving up for it, or working more, lol.

 Whew this is a dumb idea, and the last thing we need: encouragement to spend down our retirement savings BEFORE retirement. wow

I work for the State so I have a cash-balance defined contribution plan. Cash balance meaning I will always be guaranteed my cash I put in. I have no control over the growth in my account, and can't remove any of it unless I leave employment with the State. Only vested after 5 years. Everyone contributes 4.1% of the first $20,000 of income with a 1.56 TIMES match by the State. So for every $1 that comes from my check, the State matches it with a $1.56. Yea! After $20,000 in income, my contribution goes up to 4.8%, meaning the State pulls 4.8% out of my check. We also have a deferred comp plan to boost retirement.

It's not a cash-flow hardship for me--I don't even miss it as it comes out of my check before I even see it. Now, I should do more deferred comp than I do but I also fund a Roth IRA so I feel pretty good. I'm hitting about 12-13% right now and I'm 32 years old. But I need to play catch up as I didn't enter the work force until 25 (seven long years of school) and had to wait a year to start my retirement plan. So only been contributing for 6 years.

 I've never heard of it but thanks for the heads up. Will definitely look into it.

Hmm... never heard of this one, but (sadly) it doesn't surprise.  I don't have a 401K because I work for the school system, but I do have a 403b - and it wouldn't surprise me if they try to do the same thing with those.  Borrowing against your retirement makes no sense to me - I only wish I knew when I was 20 what I learned when I was 30; starting sooner would have prevented so many concerns.

Greg- we recently cashed out an IRA so we could get food support for the next several months, spent it to pay down credit card debt, still no food support, but the budet is a little easier.  We have contributed to a 401K for the past 7 years, sometimes it has been a real hardship, but that fund is now somewhat secure, for a little while longer.  Things are very tight for us right now, we might end up having to draw some of that money if it gets too tight. I will definately sacrifice long-term security to pay for the mortgage and food- for me, it would seem silly to be sitting on retirement mone and not paying the bills to keep the house, heat, and food.  We're not going to be homeless and hungry just to save money for 20 years down the road-

Does this seem stupid?  If we buy the house, we'll have a place to live.  If we continue to eat healthy  food, take our medications, buy the things to maintain our frugal life, we'll be much farther ahead than if we sacrifce too much.  My earning potential starts to go up a lot in the next decade, as the kids get older.  Plus I don't see retiring at 65, I really like working.  Why plan with such fear for the last part of your life?  God holds the lamp by our feet, we can see a little ahead, but no further.  It has only been in the past few decades as family support has failed that getting old has been such a cause of anxiety.  I'm going to try to balance living oday and planning for tomorrow, but I definately err on the side of taking care of present concerns.  

 I don't think anyone would sacifice the present day needs of food and shelter over the retirement.  like an emergency fund if you have the extra money it is great to save  if you have extra .  but it is good to try to go as far as you can go with out touching it too.  we cashed in one retirement account and i know if dh was on board we wouldn't have had too.  water under the bridge.