The debate is raging over 401K debit cards. A bill is being introduced to the US Senate which would ban these cards entirely. Some customers maintain that they should be able to do what they want with their money. Proponents of the bill agree, but point out that there are some serious and little-known drawbacks to putting one's 401K savings to use on a regular basis.
Those in favor of pushing the bill into a law cite various reasons for their disapproval. The mechanics behind the debit cards are a little disturbing. For example, each time a 401K debit card is used to pay for a transaction, a separate loan is taken out against the customer’s retirement savings. These different loans can be subject to different repayment terms. Typically, 401K debit card loans must be repaid within five years. With dwindling resources, customers are more likely to default on these loans.
Also, customers face ten-to-one losses when they withdraw money from their 401K. That is, a withdrawal of $1,000 leads to $10,000 in lost retirement funds. The 401K debit cards facilitate these losses by making it easier than ever to withdraw from the account.
Those in favor of pushing the bill into a law cite various reasons for their disapproval. The mechanics behind the debit cards are a little disturbing. For example, each time a 401K debit card is used to pay for a transaction, a separate loan is taken out against the customer’s retirement savings. These different loans can be subject to different repayment terms. Typically, 401K debit card loans must be repaid within five years. With dwindling resources, customers are more likely to default on these loans.
Also, customers face ten-to-one losses when they withdraw money from their 401K. That is, a withdrawal of $1,000 leads to $10,000 in lost retirement funds. The 401K debit cards facilitate these losses by making it easier than ever to withdraw from the account.
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