Debit Card for Your 401K

Flickr: Martin Eian

Following on the heals of yesterdays $50 Mastercard I found out about a debit card which is just as much a stinker. Reserve Solutions Inc. rolled out a new debit card solution a few years ago which it has just begun marketing recently. Normally debit cards aren’t so bad, you are using money you already have and so long as you can avoid ATM fees the overall cost is low. Reserve Solutions debit card dubbed the ReservePlus debit card lets you borrow against your current 401k. Let that sink in, you are going to borrow against your retirement to handle your day to day expenses. This is such a horrendous idea I am struggling to find a appropriate metaphor.

Nevermind that you are dipping into the money that is supposed to carry you from employment to the grave, the penalties on these withdrawals has to negate the amount the temporary benefit of using this money. The card allows for plan participants to withdraw from their retirement plan and pay interest on that money. This arrangement sounds oddly like a secured credit card.

As a young person it bothers me that the company is targeting other young employees as the main users of this product.

Young contributors are more likely to open accounts, knowing they can access the money in an emergency

Retirement funds shouldn’t be seen as this magic stash of cash you can tap at age 25, this money should be invested in order to support you and yours later in life.  Please don’t treat your 401k as a “emergency fund”, your better off building up a reserve in a high yield online savings account.  Even an emergency fund of $1000 is a good start and can be a lifesaver down the road.

Digging a little deeper it appears that Reserve Solutions has provided turnkey mortgage solution, as well as other IRA and 401* packages for companies.