What are 401k Debit Cards?

Those who are lucky enough to receive a 401k plan as part of their employee benefits must experience mixed emotions regarding the money on deposit. On the one hand, the benefits of having a 401k are overwhelming and will come in very handy in retirement. On the other hand, there is an account in your name, with your money and you need to keep your hands off it until the age of 55. Ultimately, the temptation may be too great to resist and because of that, 401k debit cards are popping up as a way to access the money invested in a 401k plan.

How 401k Debit Cards Work

Some 401k plans provide their depositors with debit cards directly linked to the retirement funds. The process of accessing the money via a 401k debit card is similar to the process of getting a loan against an existing 401k deposit. The depositors must first apply for a loan against their 401k assets and the company’s plans must approve their request before the money will become available through the card.

Reserve Solutions

One such program, ReservePlus, offered through Reserve Solutions, comes complete with many benefits that may make using these resources for a loan a great idea. Some of the rules unique to the 401k debit card program through Reserve Solutions are:

  • When it becomes time to repay the loan, you can pay off more than the minimum and pay down your debt at a faster rate than traditional 401K loan arrangements
  • Once a payment schedule has been established, you can still repay on the original schedule even if you are no longer working for the company that issued the 401k plan benefit
  • The money on deposit in the 401k will continue to earn returns until it is physically withdrawn with the 401k debit card

When it comes to borrowing against your 401k, there can be significant tax penalties and future retirement issues if the money is not repaid as scheduled. If your company provides you with a 401k debit card, before you accept the terms of the loan, you should exhaust all the other means necessary for a loan option. It is usually best to leave retirement money in place until the actual age of kicking back switches into gear.