Thursday, May 29, 2008

Retirement 401(k) Debit Cards Are Costly, Finra Says (Update3)

Using a debit entry card to take hard cash from
your 401(k) retirement program may bring forth brawny fees and trigger
duplicate taxes, the chief U.S. brokerage firm regulator said.

Funds put aside for backdown may gain less involvement rates
than other assets in the nest egg plans, and minutes can lead
to taxation punishments and a assortment of fees, the Financial Industry
Regulatory Authority said today in an investor qui vive titled
''Think Before You Swipe.''

The card game deter retirement nest egg by making it too
easy to borrow, said , Finra's senior frailty president
for investor education. Finra issued today's warning amid
research that proposes U.S. workers are increasingly reaching
into their retirement business relationships to ran into expenses.

''We demand people to salvage in their 401(k) plans, not see
their 401(k)s as a pot of gold to tap into whenever they need
money,'' Gannon said in an interview. ''I'm very concerned this
is going to cut down the retirement nest egg charge per unit in this country.''

Taking money out of your retirement savings, even for a
short clip period of time, ''can have got tremendous repercussions,'' Finra
said in the advisory. The card game let people to pass money
from their retirement accounts, paying fees and involvement over
time.

Loan Fees

Each clip a individual utilizes the card or composes a bank check against
his retirement plan, it numbers as a separate loan, meaning each
withdrawal may have got different footing and fees. There may also be
fees to put up the card accounts, a $2.00 hard cash progress fee every
time the card is used, return-payment fees and complaints for
express bringing service, Finra said.

Interest rates are tied to the U.S. premier rate, in the same
way traditional recognition card game are, according to the regulator. Unlike most recognition cards, there isn't a saving grace period, so interest
starts accruing as soon as the dealing is posted. An
additional ''margin'' complaint travels to the debit entry card vendor, and
finance complaints go on until amounts borrowed are paid back in
full, Finra said.

Since employers administrate retirement plans, they must
approve the sum amount that tin be withdrawn, Finra said,
although they may not necessitate to subscribe off on each individual
transaction. An employer can enforce punishments if the sum amount
borrowed transcends the plan's guidelines, generally a upper limit of
$50,000, said.

''The thought of a 25-year-old, working some sort of normal
job, with the ability to borrow this easily from a 401(k) seems
to completely sabotage the intent of the accounts,'' said David
Lewis, a fiscal advisor in Knoxville, Tennessee. ''I make not
see the point of even considering this idea.''

Lump Sum

A traditional loan against a 401(k), often used as a down
payment for a place or unanticipated medical expenses, must be taken
in a hunk sum, and the loan must be administered by the employer
who offers the retirement plan. A refund agenda is put by
law, which spells out specified amounts and intervals.

, a division of the asset-management
company The Reserve, sells the debit entry card to employers as a way
of reducing administrative costs, according to the New York-based
company's Web site.

The card game promote retirement nest egg by ensuring employees
will have got easy entree to the money when they necessitate it, the company
says. The withdrawn money sit downs in a money-market fund, earning
interest, and employees can utilize the card only for as much money
as they need.

The Modesty declined to notice on Finra's advisory, , the company's outside spokesman, said in an e-mail.

Low Savings Rates

The 401(k) card game are often marketed to employers with young,
seasonal, ephemeral or labor union workers. These groupings already have
some of the last nest egg rates and are vulnerable to predatory
lending, Finra's Gannon said.

''This is close to a predatory loaning practice,'' Gannon
said.

Cards linked to 401(k) business relationships have got other constraints
borrowers necessitate to consider, Finra said. If you lose or go forth your
job, you may have got to refund your full loan within a clip frame
set by your employer. If it's a short period, that may set you in
a fiscal crunch, the regulator said.

There are also taxation implications. Repayments to 401(k) debit
cards are made with after-tax dollars that volition be taxed again
when money is withdrawn at retirement. That's a sort of double-
taxation that doesn't happen with conventional loans against
401(k) accounts.

Timely Refund

Finally, Finra said 401(k) debit entries necessitate to be paid back
within five years, and regular payments, including both interest
and principal must be made every three months. Failure to take
either of these stairway intends you'll be considered in default, and
the debit entry card backdowns will be treated as an early
distribution of your retirement savings. Unless you're 59 and a
half or older, you'll have got to pay taxations on the balance, plus a 10
percent penalty.

''Regardless of how easy it might be to do, borrowing
against your retirement nest egg should be a last, not a first,
resort -- and done only in exigency situations,'' Finra said in
its statement. ''Remember that with every swipe come ups the
potential to pass over out a part of your hard-earned retirement
savings.''

To reach the newsmen on this story:
in American Capital
;
in American Capital at
.

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