The thriftiness that once characterized Americans such as my grandparents has vanished. Instead, we've turned into a nation that's great at borrowing, terrible at saving, and in love with convenience.

The latest in especially dangerous conveniences is the 401(k) debit card, which makes it too easy to borrow from your retirement account. A number of companies are beginning to offer these cards to employees who invest in retirement programs. A 401(k) debit card allows you to borrow up to $50,000 or 50 percent of the value of your retirement plan, whichever is less, with a piece of plastic.
 

Unlike a debit card that deducts money from your checking or savings account, a 401(k) debit card withdrawal is a loan that you make to yourself out of your retirement savings. More akin to a traditional credit card, you must repay the money you withdraw, along with fees and interest, or you may incur penalties.

Here's what you need to know before considering such a foolish move as tapping into your retirement accounts by any means, especially with a debit card:

You must pay fees on top of interest if you use the 401(k) debit card to borrow from your retirement savings. The card offered by ReservePlus takes roughly 3 percent in what they call "margin." Other fees include an annual fee, a set-up fee, a cash-advance fee and fees for other services, such as express delivery.

If you don't repay the money as required, you will suffer significant penalties, and you will owe the Internal Revenue Service. If not paid fully during the time specified, the loan will be considered a withdrawal, subject to a 10 percent penalty. Then you will have to pay income taxes on the amount not repaid. That could add up to half the money that you "borrowed" originally.

If you leave the company, the loan becomes all due and payable. Especially during these times of uncertainty, it is foolish to assume that you never could be laid off or you never would choose to leave your job. There are few things as discouraging as being chained to a job you hate because of a 401(k) loan you took many years previously.

So what should you do if you have a healthy retirement account but need money fast?

Put your retirement account out of your mind. Do not even consider it as a possibility. Pretend that it belongs to someone else and for you to use it would be thievery.

Next, put yourself on a spending freeze. Spend not a dime for anything that is not required to sustain life or keep you out of legal trouble. Then pull out all the big guns: Sell assets, work extra hours or get an extra job for a while.

I guarantee that if you stop allowing yourself to think of the equity in your home or the balance in your retirement account as your money, you'll find reasonable solutions to your short-term financial challenges.

You'll retire with a big, fat balance in your retirement account, too.

Mary Hunt is the founder of DebtProofLiving.com and author of 17 books, including "Debt-Proof Living." You can e-mail her at mary@everydaycheapskate.com, or write to Everyday Cheapskate, P.O. Box 2135, Paramount, CA 90723. To find out more about Mary Hunt and read her past columns, please visit the Creators Syndicate Web page at www.creators.com.
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