As the economic downturn continues, clients who find that they are retirement-plan rich but cash poor will tend to make more frequent use of 401(k) debit cards to pay for bills they can’t quite manage with their regular income. But as with all credit options, clients who misuse these cards may be getting themselves into trouble.
According to the Securities and Exchange Commission, 401(k) debit cards allow consumers to conveniently borrow up to $50,000 (or 50 percent) of the value of their retirement plan. But many consumers may forget that, like a traditional credit card balance, 401(k) loans must be paid back … with interest.
If your clients are determined to use a debit card to borrow against their retirement plans, here are some facts they should know regarding this type of loan:401(k) debit cards do not provide free money. The client will have to pay interest and may incur fees.Loan repayment is on a prescribed schedule (in five years or less and without missing three consecutive payments).