Monday’s Tip from Money Mom – Avoid a Debit Card Tied to Your 401(k).
Money Mom just heard about a truly bad idea – a debit card that pulls money straight from your “qualified retirement plan” such as a 401(k). You spend money for everyday purchases using the debit card, but with every purchase you are borrowing a bit more money from your retirement account.
Borrowing from your retirement account reduces the amount of your money that is working for you while you are in your working years. Most of us already are not saving enough for retirement, and we need whatever we have saved to be working for us.
Using a debit card to borrow money is a bad idea. A well thought out plan to borrow for a specific purpose such as a college tuition bill is very different from having instant access to borrow from your retirement fund with a debit card.
If your employer offers you a debit card tied to your 401(k), just say “no thanks.”