ING Releases Controversial 401(k) Credit Card

October 29, 2004 ( - Over twenty years after it started as an idea in Francis Vitagliano's head, a card that allows 401(k) plan participants to borrow from their retirement savings is finally being released by ING.

Railed against by some, supported vehemently by others, the 401(k) credit card will allow employees – if allowed by their employer – to purchase the new card for a $50 annual fee that permits retirement plan participants to borrow money for routine purchases or major expenditures. With the caveat that it must be paid back to avoid fees, the 401(k) credit card may now make a defined contribution plan indistinguishable from a normal bank account, according to a report by the Washington Post.

ING , who has released the card after Banc One dropped the idea nearly a decade ago, will not allow employees to borrow more than $10,000, or 40% of the money in the retirement account, whatever is smaller. The loans would normally to be subject to early withdrawal fees, unless they were not paid back in time. Repayments must be made within a four year timeframe, and if employees fall over three months behind on repayments, they would be considered a delinquent on repayment. Under IRS rules, the loan would then be considered a withdrawal, the employee would lose the right to use the card, and the loan would be subject to ordinary income tax plus the usually 10% withdrawal penalty would apply, the Post reports.

As for now, 18% of 401(k) participants have loans outstanding. These loans, under federal law, may not exceed $50,000, and in most cases must be repaid within five years.

What started as the brainchild of Vitagliano – who brought his idea to Nobel Prize economist and MIT professor Franco Modigliani – has ended up, for better or worse, as reality. Skeptics and lovers alike have spoken on the subject, with heavyweights such as former Secretary of the Treasury and current Harvard president Lawrence Summers praising the inception while the head of the AARP condemns them. While some think that it will encourage retirement savings because people will now be able to access the funds (Summers), others think it will deplete even further American’s retirement coffers (David Certner of AARP).