The 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
Any eligible employee should 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401(k) plans—especially if your employer matches your contributions at all—because having the investments automatically withdrawn from your pay means you’ll never miss the money.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.
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