What to do if your employer stops matching your 401(k) contributions
One benefit that many salaried workers in the United States take advantage of is 401(k) employer-matched contributions. These contributions help workers across the country build their retirement portfolios with “free money” kicked in by their employers.
Unfortunately, when times are tough, employers may limit or stop making matching contributions. For example, this might be done to help save the company’s money to avoid layoffs. Usually, decreasing or stopping a matching program is temporary, but it does leave workers wondering what they can do to get the most out of their retirement savings, especially if they are nearing retirement.
Here is what you need to do if your employer stops matching your 401(k) contributions:
Even without an employer’s match, your contributions to your 401(k) lower your taxable income for the year. It hurts to lose the additional contribution from your employer, but do not give up on your plan and lose out on tax savings. If you can afford to and if you are not already putting in the maximum, you should increase your contributions to make up for the loss until your employer resumes contributions. If by then you have gotten accustomed to the higher contributions, just keep doing it.
Consider opening an IRA
If you do not have one already, you can open your own traditional or Roth IRA account, if you qualify. You do not need to go through an employer to open an IRA, which makes them a great option for anyone who wants to save more or whose employer is not offering a 401(k) plan. Additionally, you have more control over your investments in an IRA so you can diversify your portfolio against what you are contributing toward in your 401(k).
As of 2020, the annual IRA contribution limit is $6,000 ($7,000 if you are 50 or older).
Do NOT withdraw early
If your 401(k) is not growing as much as you would like (such as when an employer stops contributing), you might be tempted to withdraw your funds early. This is almost never a good idea.; 401(k) funds withdrawn before your retirement age of 59½ are subject to a 10% withdrawal penalty and are counted as taxable income.
Let your funds continue to mature in your account so you can continue to receive tax advantages and grow your wealth for your retirement.
Consider new employment
Occasionally pausing contributions to a 401(k) is normal. If the economy is bad or if your company had a bad quarter, they might stop contributions to avoid other consequences like layoffs. This alone is not much to be concerned about, but if there are other red flags, you might want to start exploring other employment opportunities.
For example, is your company laying off employees? Are they cutting back hours? Are your company’s earnings drastically low? Are higher-level employees leaving on their own initiative? These circumstances in concordance with no more 401(k) matching are signs you might want to look for new employment.
Talk to a ProVise CFP® professional about managing your retirement savings
You may have a retirement strategy in mind, but life happens and your strategy needs to be flexible enough to change. If your employer stops matching your 401(k) contributions, you can talk to a financial advisor about adjusting your strategies to help keep you on track for meeting your goals.
At ProVise Management Group, our CERTIFIED FINANCIAL PLANNER™ professionals can get to know you and your current financial circumstances, goals, risk tolerance and personal values to help you develop a plan that works for you. We can also create a written plan for you at a fiduciary standard of care. All our written plans come with an unconditional money-back guarantee. If you are unhappy with your written plan, you can return it to us, and we will refund 100% of the fee paid.
Are you ready to talk to a professional about managing your retirement strategy? Contact ProVise today to schedule a complimentary consultation.