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Entrust Group Launches IRA Debit Card

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11-17-2008

By Jilian Mincer
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--

Entrust, an administrator for self-directed retirement plans, said it developed the IRA debit card and IRA checking account because investors are looking for an easier way to take required minimum distributions and to make purchases related to their IRA investments. Critics warn that the easy access could make it more tempting for cash-strapped investors to misuse their retirement savings and end up paying taxes and penalties.

"It sounds like it's convenient, and it might be for people who are using it correctly," said Ed Slott, an author and IRA consultant. "But you take someone who has just lost a job and put a debit card in their hands and that could be Christmas shopping."

The IRA card, which Entrust said is nothing like the much criticized 401(k) card, is believed to be the first of its kind. The IRA Debit Card and IRA Checking Account enable the investor to separate uninvested assets into another account within the IRA. The consumer could then use the debit card or checks to draw cash from that account to take distributions or to make investments. Investors still need to send Entrust receipts if the purchases are for the IRA to avoid tax penalties. The debit card is cobranded with Visa and could be used wherever Visa is accepted.

"A lot of people are very interested in it because it's much easier than waiting for us to pay the bill," said Hugh Bromma, chief executive of the Entrust Group. The company has 50,000 account holders with a little more than $4 billion in assets. Its headquarters are in Reno, Nev.
Currently, he said, if someone's IRA owns property and the investor wants to purchase new appliances for the building, the consumer would have to get a bid and then request a check from the plan administrator. The card or checking account would enable the investor to pay the bill with cash set aside within the IRA and submit the bill as proof that it was not for their personal consumption.

"They're not dependent on our hours to conduct transactions," said Jason D. Craig, chief operations specialist for the company.

He said the other major use for the product is for distributions. Investors would let Entrust know in advance how much and how frequently they want the distributions, and the cash would become available for purchases. Receipts aren't necessary for these purchases because they are distributions.

Craig said the IRA debit card isn't like the 401(k) debit card, which has been heavily criticized. That card, he said, lets people take a loan from the 401(k) plan. The IRA card isn't for loans.
Tom Tilton - an IRA investor in Porterville, Calif. - has been testing the new card and said he finds it very convenient.

His IRA owns three rental houses. In the past, he had to shop around and request a check from Entrust to pay for renovations.

"I use it just for the houses, getting them ready for renting," he said. "Before it would take several weeks to get the invoices and to receive the check from the IRA."

Slott, the IRA consultant, said an IRA debit card could make it more convenient, but he said he worries that in the current economy investors would be more likely to abuse it and to end up with unnecessary enormous taxes and penalties.

"This is not the time to make it easy to access money," he said. "That's going to cost you your future retirement."

Craig of Entrust said he isn't worried about investors misusing the savings because "they have to transfer the money in the account to have privileges."

The most someone can set aside for each transaction without making a special request is $5,000. One drawback is that it is a debit card. Unlike a credit card, someone could potentially drain what is available in the special cash account.