Here’s a horrible idea: a 401(k) program with a debit card. That’s right, you can go to the ATM and make withdrawals from your 401(k) retirement savings plan. [TheStreet]

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  1. hypnotik_jello says:

    Worst Idea Ever. Might as well die young while you’re at it.

  2. MercuryPDX says:

    Wait… don’t they tax the crap out of you for early disbursements?

  3. shadow735 says:

    Its like 20% federal and 5-8% state then you have to pay income taxes as well.
    This is a great idea for when you actually retire.
    The govt probably likes this idea it means more revenue for them.

  4. hypnotik_jello says:

    @mercurypdx: It’s not a disbursement though, I think it’s treated as an interest free loan which you have to pay back. Let’s say you have 10,000 in your 401k and you take out a loan of 5k. You would only be earning money on 5k of principal.

  5. HRHKingFriday says:

    Oh god. I finally saw those rebate loan check card commercials too.

  6. mookiemookie says:

    Making it even easier to steal from your future self. Sounds great.

  7. UpsetPanda says:

    @mookiemookie: If only 401(k)s could allow your future self to come back from his penthouse suite in the alley behind a McDonalds to smack you down for wasting your money when you were young enough to have dreams and ambitions.

  8. shadow735 says:

    I took out a 401k loan they deduct the money from your paycheck, so I would assume you would have to sign up for this and list the limit of the loan then as you withdrew you would have a percentage taken out soemthing like this would be hard to do unless the terms of the loan were set that your withdrawl period would end on a specific date, after that the balance you withdrew would be calculated and the deductions from your paycheck would start.
    One thing to note if you change jobs or get laid off you have to pay back the full balance otherwise you will get taxed on the remaining balance.

  9. howie_in_az says:

    I don’t see a problem with this. If people are stupid enough to want to do this, let them.

    In very much the same vein, lets remove warning labels on paint. Bear in mind that these labels are there in an attempt to thwart people who have made a conscious decision to eat paint.

  10. bohemian says:

    Well people can’t use their home equity like an ATM any longer so now they have moved to retirement saving.

    So what do we do when this becomes the next national crisis like the housing problem is right now???

  11. humphrmi says:

    Not saying this isn’t a bad idea, but there are times when a 401(k) loan isn’t actually a bad idea, as long as it’s managed responsibly, and also depending on the loan program your 401(k) custodian offers.

    For instance, some offer to actually loan you money out of your 401(k) (i.e. not just use the 401(k) as security). Then you pay it back with interest, which you’re actually sort of paying yourself.

    In this scenario, if you had borrowed against your 401(k) a couple months ago when the market was at record highs, you would have “sold high”, and now that the markets are producing negative returns, you’ll be buying back cheap. And your interest, that you pay yourself, is actually generating a better rate of return than the markets would be paying you right now.

    Of course that requires a lot better timing than an ATM card gives you. And discipline. And of course all this assumes that you’re not just borrowing the money to go blow it on an HDTV. Use that loan to pay for college or buy a house, and it’s a win all around.

  12. RandoX says:

    Sounds convenient!

  13. SpecialEd says:

    Taking a loan from your retirement is one of the worst ideas in the history of man, but a debit card to tap into it anytime you feel the “need”? Incredibly sad. And it will be years before the dolts that sign up for this figure out that they have screwed themselves out of thousands of dollars.

  14. If it’s good enough for the federal government, why shouldn’t it work for the average consumer? Where’s my $600 Unca Sam?

  15. hypnotik_jello says:

    @PotKettleBlack: Probably because your average consumer can’t print their own money or issue uncollateralized debt instruments such as bonds?

  16. deadlizard says:

    Next thing they’ll go after is your piggy bank.

  17. rhombopteryx says:

    @humphrmi:

    i.e. not just use your 401k as security

    Yeah, that’s a little on the illegal side of the fence. Taking a loan out is permitted if you pay yourself back – but using it as security is verboten under federal law.

    You’re totally right otherwise about it being an “often-but-not-always-bad” idea, though. Especially lately.
    If only the average american had taken a 401k loan out in december to pay off their subprime mortgage, and then paid that loan off, they might be better off.

    Saved on mortgage interest – check. Avoided the impact of a reseting teaser rate – check. Didn’t loose much retirement when the market tanked – check. Forced self to save more for retirement by paying back loan and witholding – check. Reduced overal mortgage debt -check.

  18. teh says:

    @hypnotik_jello: I agree with you, but our federal government hasn’t been setting much of an example either. Our federal government has been borrowing from our future selves for years, lately more than ever. Just maybe one day, I’d like to see some of the SS money I put into the pot.

  19. rhombopteryx says:

    @mookiemookie:
    Yikes – borrowing from future retirement savings. Hope Congress doesn’t get any ideas like this.

  20. xQuizx says:

    When you repay the loan don’t you use money that is taxed by the government, compared to the untaxed dollars that intially funded your 401k? Which means not only are you paying off your own loan but also the governments! I guess it’s a win win!

  21. AD8BC says:

    Not a bad idea…. if you are retired and taking disbursements…

    Other than that? Nope.

    I did once take a 401(k) loan when I bought my first house. Not a bad deal… sure you pay it back with after tax dollars, and the interest is high, but the interest goes right back into your account, so you are borrowing money from your future self and paying your future self interest on it.

  22. asphix20 says:

    @bohemian: We raise taxes so that people who make money can pay for the old people who sh*t theirs away irresponsibly.

    I’m all for social security and helping people who need it.. but I cant help but notice how abused the system is.. and feel bitter that while I’m suffering to be responsible and setting myself up for the future I’m paying, or will be paying for those where werent/didn’t.

  23. ihateauditions says:

    My wife did a 401(k) loan on her first house to get up to a full 20% down. We did the math on the effect of the future and all of that, and it was a better deal than paying PMI for her exact numbers.

  24. tk427 says:

    @asphix20:
    “…the old people who sh*t theirs away irresponsibly.”

    Do you mean like homeowners in LA that have to fight their insurance company tooth-and-nail to get them to admit that it was the wind from the hurricane (not the flooding afterward) that destroyed their home?

    Maybe you’re talking about a family that has to come up with an ungodly amount of money to replace their child’s liver because the insurance company is dicking them over?

    I truly hope that your life is long and perfectly happy and that you never suffer from any catastrophic irresponsibility.

  25. swalve says:

    @SpecialEd: It’s only a bad idea if you don’t intend to pay it back. It’s a great idea if you do because the interest rate is very low and you save money.

    @tk427: If I lived in a hurricane prone area, I’d get insurance for both wind and flood damage. Just to be on the safe side. And make sure my health insurance covered liver transplants.

    @asphix20: Abuse is a small, small, small fraction of the total expenditures. I’ve known people who were scammers, and their lives suck.

  26. brokeincollege says:

    And of course, remember the $3 ATM fees.

  27. @hypnotik_jello: True, but if fiscal responsibility is out in DC and “borrow and spend” is in, why should the public do anything different. It sets a bad example, that’s all.

  28. @rhombopteryx: Cue your $600 “rebate”.