My 401(k) Is Getting Rid of the Match – Should I Still Contribute?

by Stacy Francis, CFP®, CDFA

A client called me up with this excellent question yesterday. Of course, as long as your company matches your contributions, you should contribute as much as you can toward your 401(k). It is unwise to turn down free money, and especially free money that will grow and grow and grow – tax deferred – and make up a good portion of your nest egg. But what happens when your company ceases to match your contributions?

You always want to contribute toward some sort of retirement account - preferably by maxing out you 401(k) and a type of IRA if you can (certain income limits apply for Roth IRAs). The main difference between an IRA and a 401(k) – apart from the fact that 401(k)s generally have the added benefit of free company matches – is that with a 401(k), many times, you have limited investment options. Though many employers will add, say, a certain mutual fund upon request, some won’t. If the latter is true for your company, you are stuck. You cannot rollover a 401(k) unless you leave the previous employer and are no longer employed.

However, you may want to consider rolling the money in your previous employer’s 401(k) into a Rollover IRA and contribute toward that account instead. As long as this rollover takes less than 60 days, you will not face any tax consequences.

Of course, if you are already invested in the funds you like the best, there may be no reason to shake things up. You may be better off keeping the money where it is.

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Stacy Francis, CFP®, CDFA

Stacy Francis is the Founder, CEO and President of Francis Financial, Inc., a Wealth Management and Financial Planning firm. With over 18 years of experience in the financial industry, she is a CERTIFIED FINANCIAL PLANNER™ (CFP®), a Certified Divorce Financial Analyst™ (CDFA™), and a Certified Estate Planning Specialist (CES™). She is the Co-Director of the Association of Divorce Financial Planners’ (ADFP) Greater New York Metro Chapter and a member of the Women Presidents’ Organization (WPO) and an honoree member of the Private Risk Management Association (PRMA). A nationally recognized financial expert, Stacy has appeared on ABC News, CNBC, CNN, PBS Nightly Business Report, The Today Show, Good Morning America, Fine Living Network, and The O’Reilly Factor. Stacy attended the New York University Center for Finance, Law and Taxation.