New 401K Debit Card Legislation

I’m not a big fan of 401(k) debit or credit cards because I’m not a fan of raiding your retirement accounts to pay for non-retirement expenses. I think that the retirement bucket should essentially be a lockbox (*gasp* the dreaded lockbox phrase) that you don’t touch unless you’re actually retiring.

However, the cat’s been let out of the bag with 401(k) debit cards and they do improve 401(k) loans as a whole. Before debit cards, you would have to take out a lump sum loan rather than borrow only as much as you needed. With debit cards, you draw down the funds as you need it and it reduces the interest you do pay. While I don’t like the idea of borrowing from your 401(k), at least this minimizes the damage.

Senator Charles E. Schumer of New York, recently in the news a lot for his letter that the Office of Thrift Supervision said caused IndyMac’s collapse, and Senator Herb Kohl of Wisconsin introduced new legislation that would outlaw credit or debit cards associated with 401(k)’s and retirement plans.