My Company Stopped Matching the 401k
Beginning this month, my company is no longer matching my contributions to the company 401k. That’s essentially $2,000 less in compensation I’ll receive this year, if they don’t match for the remainder of the year. They do say that this is a temporary, precautionary move. Still, this is disappointing news.
I thought about making this post a rant about why that is a horrible cost cutting idea (hurts those that are most responsible, doesn’t really save that much, etc.), but I decided instead to talk about what I’m going to do in light of this change. How am I going to respond?
I also don’t want to rant because I know (a) not everyone even has this benefit to begin with, (b) not everyone even has a job right now, and (c) I don’t want to let them (my company) know it got to me.
I can tell you up front this doesn’t discourage me from saving for retirement (nor does the current economic situation, really). If anything both make me want to contribute more to retirement. The one thing it definitely does though is make me rethink how I want my investment mix to look once I’m 5 years from retirement. Can you say ultra-conservative!
For further thoughts on contributing once the match isn’t there, see Things to Consider if Your Company Cuts the 401k Match. Very useful article and definitely made me rethink the idea of ranting about this whole thing.
What’s Better Than a 401k?
Since I’m going to forge ahead, I guess the question I have to ask myself is, where does the 401k now fall in priority to the rest of my financial goals, and are there now better vehicles to help me achieve those goals?
The traditional order of action for retirement savings and improving your net worth has been:
- Contribute enough to get the 401k company match.
- Then, if you have more to save, put it to a Roth IRA and contribute the maximum.
- Then, if you have even more, go back to the 401k and max it out.
- And if you have even more than that, contribute to a taxable investment account.
The reason this is traditionally the way you’re instructed to invest is because of the limited number and higher cost of investment options held in a typical company 401k. Plus, some would tout the tax advantages of a Roth vs the 401k.
A Roth IRA is?
I just recently opened my first Roth IRA. And if you’ll remember, that was over and above my 401k matching and maxing out efforts. And you might also remember those Roth IRA contributions I attributed to tax year 2008. So, last year, I handled my 401k upfront to the max, and then moved to the Roth. Basically, I did 1, then 3, then 2 in the list above. fyi…the Roth is invested in a stock market index fund, while the 401k is in a target-date fund.
This year, I really don’t see any reason to make a drastic change from that plan. I will attempt to max out 401k contributions by 12/31 and max out Roth IRA contributions by 4/15/10 for both my wife and I. Since I plan to do both, I guess it doesn’t really matter what order I take it. In fact, I think the due dates lend themselves to doing it in that order. Do you agree? Let me know if I’m missing something here.
By the way, while I was writing this post I was also wrapping up 2008 taxes. It should be noted that maxing out my 2008 401k contributions saved me around $4,000 in taxes. Take that, upper tax bracket!
I feel like this post led to nowhere. Sorry bout that. Hopefully it will at least spur you on to saving more for your retirement. The benefits can be huge, even if the company isn’t matching anymore.