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PrintWhat to Do If Your Employer Cuts Its 401(k) Match Benefit
Career, Investing November 18th, 2008The stock market isn’t the only thing that might be beating up on your 401(k) retirement plan; many employers are cutting 401(k) plan matching benefits as a way to reign in expenses, the Wall Street Journal reports. What should you do if your employer pulls your matching benefit?
Many employers match employee 401(k) contributions up to a certain small percentage of your salary. For example, for every one percent of your salary you invest in a 401(k) (up to a maximum percentage), your employer might put in an additional half-percent. So if you saved six percent of your salary, your employer would pay you an additional 3% of your salary into your retirement plan.
Employer matching is a great incentive to invest in your 401(k), but it’s also an easy benefit for companies to cut when times get tight. If your employer stops matching contributions, don’t stop saving fore retirement! Employer matching is used as an incentive to get employees to save, but you should continue to do so even without it. If you can afford to, up your contributions to make up for the lost employer contribution. Or, you may consider switching your investments to a Roth IRA.
Switching to a Roth IRA
I recommend any eligible employee to take advantage of 401(k) plans—especially if your employer matches your contributions at all—because having the investments automatically withdrawn from your pay means you’ll never miss the money. If your employer stops matching your 401(k), however, a Roth IRA is actually a better retirement account because you can take withdrawals tax-free after retirement (your 401[k] contributions are tax-free now, but will be taxed when you withdraw them).
Although you can put $15,500 into your 401(k) in 2008, this year’s IRA contribution limit is $5,000. Keep that in mind and spread contributions between the two if you’ll be able to contribute more than the IRA limits.
Has your employer cut 401(k) matching because of the economy? Are they slashing any other benefits? What have you done?
November 19th, 2008 at 5:13 pm
My employer cut their 50% match effective July 1, 2008. I stopped contributing at that time since my husband and I are currently focusing on getting out of debt (one car loan and one installment loan) first. If my employer were to bring back the match, though, I would probably start up with contributions again.
December 3rd, 2008 at 1:57 pm
My employer stop their matching effective January 1, 2009. Should I put money in a Roth IRA or continue contributing to my employer plan. I will be in a lower tax rate in retirement.
December 19th, 2008 at 11:07 am
Well, maybe I shouldn’t have written about this. It just happened at my employer. I upped my contributions to make up for it and a little bit more.
Joe, if you’ll be in a lower tax bracket at retirement, stick with the 401k. Roth’s really pay off if you are making less now and expect to be in a higher bracket in retirement because distributions in retirement are tax-free. Also, if you make more than $95k single or $150k married you can’t do a Roth.