Well, it finally happened to me. Last Friday, my company announced that it is halting 401k matching contributions, raises, and promotions for the remainder of the year. This is definitely better than losing my job, but between the match and the raise, that’s a good 5-7% loss of income. I am sure many of you are in a similar situation, so I just want to go over what I am planning to do.
What Should You Do If Your Company Stop 401k Match?
Before I even go into the details, I want to say that the second worst thing you could do is stop saving for retirement. And the worst thing you could do is withdrawing money from your 401k because your company stops matching.
Photo by Angelray via Flickr
Contribute To Roth IRA First
You may be one of the individuals who had to decide between investing in a Roth IRA or a 401k. If you chose to invest 401k over Roth for the company match, now is a good time to give Roth your top spot. Roth IRA doesn’t give you any immediate tax benefit, but your investment grows tax-free. This makes it better than 401k for most people. So, max out your Roth (2009 Roth IRA contribution limit is $5000, and then contribute to 401k if you have more to save.
Here’s a special note for the not so discipline. If you depend on 401k automatic contributions to save money and know that you can’t put money away for Roth, you might be better off sticking to 401k. Otherwise, work with your bank and HR to see if you can set up some kind of automatic payroll deduction.
Other than switching to Roth for the first $5,000, there’s no reason why you should stop contributing to your 401k. Personally, I am planning to keep investing even without the match. Yes, it sucks to lose the matching amount, but this doesn’t change the fact that you still need to save for retirement somehow.
Make Up The Difference
I am really glad I embarked on my journey to create alternative income streams and earn extra income about 20 months ago. Aside from the extra income, my side job allows me to save money in a SEP IRA Simplified Employee Pension Plan. This plan helps reduce my tax burden, and lets me save more for retirement.
If you have been thinking about becoming less dependent on your job and earning more money, you should dive in now. It’s not too late for you to start — in fact, it’s never too late.
Is your company one of the many that decided to stop 401k matching contribution? What have you done as a result?
Pinyo is the owner of Moolanomy Personal Finance and a Realtor® licensed in Virginia and Maryland. Over the past 20 years, Pinyo has enjoyed a diverse career as an investor, entrepreneur, business executive, educator, financial literacy author, and Realtor®.