WASHINGTON — While a growing number of companies are starting tooffer 401(k) debit cards, the Securities and Exchange Commission iswarning users about the fees and penalties involved.

A 401(k) debit card allows one to borrow up to $50,000 or 50% ofthe value of a retirement plan, whichever is less, through use of adebit card, SEC said in a July 29 investor alert.

The SEC said 401(k) debit card users are required to pay feesand interest on amounts borrowed from a 401(k). While some of theinterest the user pays goes back into their accounts, a certainamount, called margin, is paid to the card's vendor.

Under IRS rules, if users don't repay the amount borrowed infive years or less and they miss three months of consecutivepayments, taxes must be paid on the entire loan balance. Thoseyounger than 59 1/2 years old must also pay a 10% penalty.Repayments of 401(k) debit card loans are not deducted directlyfrom a user's payroll but must come directly from the 401(k)account holder.

Any money borrowed is set side in a money market fund until itis withdrawn. According to SEC, money market funds earn a lowerrate of return than other investment options through a 401(k)account.