What to do if Your Employer Eliminates its Retirement Plan Match
The recent economic downturn has forced many companies to consider making spending cuts and as a result a growing number of firms have decided to suspend their retirement plan matching contributions. Since this is a growing trend, I thought I would take the time to go over what you can do if your company has or is in the process of suspending their matching contribution.
So what should you do if your company joins the crowd and suspends their match? First and foremost, I would recommend continuing to contribute to your company sponsored retirement plan. If you discontinue your contribution you would be giving up a valuable tax benefit (pre-tax contributions lower your taxable income). In addition, the money you contribute is allowed to compound free of tax until you begin withdrawals. In addition, by continuing to contribute to your retirement plan, you ensure that you stick to your savings strategy.
Next you will want figure what you can do to make up for the shortfall. You could simply increase your current contribution to cover the loss. If you are currently contributing the maximum to your retirement plan (for 2009 the legal limit is $16,500 or $22,000 if you are over the age of 50) another option would be to contribute to Roth IRA provided you are eligible. If you are not eligible for a Roth IRA, you may want to consider making nondeductible contributions to a Traditional IRA which you will have the option to convert to a Roth IRA next year. If you are currently contributing the maximum to both your company sponsored plan and IRA, you may consider contributing after-tax dollars to your company plan or contributing money into a taxable brokerage account.
The above strategies are tips to try and help you avoid prolonging your retirement date or altering your retirement lifestyle. As always, please feel free to contact us at 877.627.8401 or info@smart401k.com if you have any questions.
Buck Wendel, Investment Advisor
