Reserve Solutions is marketing a new kind of debit card - one that lets you stop at the ATM and withdraw money from your 401(k). The withdrawals are treated as loans against your retirement account, and you must repay the funds to the plan with interest. Of course, it's being marketed as a convenient way to access your money in a time of need.

But this is the most horrible idea ever. 401(k) funds are meant to be saved for retirement, not frittered away when you're a little low on cash. This card is a disaster waiting to happen... with consumers having immediate access to funds... possibly without thinking it all the way through.

Even though the funds withdrawn will initially be treated as a loan, that loan can quickly turn into a "distribution" if the employee defaults on the loan or leaves the employer (and therefore the plan). And taking a distribution from your 401(k) before you're retirement age can have dire tax consequences. In addition to regular income taxes that may be owed on the withdrawal, there are federal and state penalties that often apply. People typically end up losing about 50% of their money to the taxes and penalties.

If you need money and you have a 401(k), the first step is to stop contributing to that plan and use the money that would have gone into the plan for your current needs. The next step is to find cash anywhere but the retirement plan. Withdrawing from the 401(k) should be an absolute last resort, and should only be done in the direst of circumstances.

Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.

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