Dozens of companies no longer contribute to employee 401 (k) retirement plans, but that does not mean you should stop chipping into your retirement account.
If you are tempted to cutback, read these six things to keep in mind, from TheStreet.com . I won’t give it all away, other than to say keep your eyes on the prize and don’t forget the tax benefits.
While you shouldn’t stop contributing to your 401 (k) just because your employer is no longer matching your contributions, there are a few factors that are worth considering.
Do you have an Emergency fund?
My grandmother always told me that having an emergency fund with at least a few thousand dollars was of vital importance. “You never know when someones going to get sick, something’s going to break, or when you’ll have to move,” she’d say. By telling me this my grandmother instilled in me the need to have a back-up plan for when times get tough. If you don’t have this, you’ll have to dip into your 401(k) if there’s ever an emergency and this is something that you definitely do not want to do. Early withdrawal fees can be as much as 10 percent on top of income tax! If there’s a possibility you’ll need the money too soon, it may be worth waiting. In my opinion, before spending or investing setting aside money for an emergency fund should be your top priority.
Do you have mountains of debt?
If investing in your 401(k) will make you unable to pay off your debt, you should hold off. Just as your 401(k) will grow because of interest so will your debt. You don’t want to have that debt lingering. In general, you should prioritize your debt before saving for your future. The faster you can pay off what you owe, the less you will lose to interest.
High Fees
There are fees associated with having a 401 (k). I know what you’re thinking, those are only early withdrawal fees. Well, that’s not the case. According to the Market Watch article, 5 reasons not to invest in a 401 (k), “There are also plan administration fees, investment fees, individual service fees, sales charges and management fees. The average household with two working adults will pay $150,000 to $200,000 in 401(k) fees over a lifetime.” Wow! That’s a hefty price for investing in the future.
What do you think? Would you continue to invest in a 401 (k) even if an employer stopped matching your contributions?
Welcome to Bargain Babe! I’m Mara, and I’m so glad you’re here. I am an obsessive bargain hunter and penny pincher, and I am determined to live a full life without EVER paying full price.
Even without the match, I think it’s a good idea to continue contributing to the retirement plan.
I wish I could contribute more. That’s the problem with voluntary 401k plans — those with less income contribute even less of a percentage of that income to the plan, and they’re that much worse off for retirement.
Like we’ll ever be able to do that. Look for me outside the Wal-Mart in the blue vest.