In past recessions, many companies seeking to cut costs and potentially avoid having to lay off workers have suspended 401(k) matches.
During the last recession, Ascensus, a pension plan administrator, said 21% of employers using its 401(k) services suspended their contributions from March to September 2020, The Wall Street Journal reported. Vanguard reported a much lower share of cuts, 7%, at the height of the pandemic.
Despite fears of a recession, few plans have suspended 401(k) matches even as a growing list of companies have announced massive staff cuts, said Fidelity Investments and Vanguard, two of the largest 401(k) providers ( k), at USA TODAY.
Even though many companies like Exxon that suspended 401(k) matching during the pandemic eventually brought it back, the time frame can be confusing and confusing for workers factoring contributions into their retirement calculations.
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If you’re concerned that your employer is suspending matching, or has already done so, here are some questions that might come to mind:
Should you contribute to a 401(k) if you don’t get a match?
“You should always contribute as much as you personally can,” said Lisa Forsythe, private client advisor at JP Morgan Wealth Management. “When it comes to investing for retirement, consistency is key.”
On top of that, if you’ve ever made regular contributions to your 401(k), “you may be used to living on the amount of your current paycheck, which already accounts for your contributions,” he said. she stated.
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Importantly, you’ll still be able to take advantage of the tax benefits of investing through a 401(k) with or without your employer’s contribution, meaning the money from your paycheck that goes into your 401(k) will only be not imposed. The Internal Revenue Service recently announced that the contribution limit for 401(k) plans will increase from $2,000 to $22,500 for 2023 due to inflation.
“Don’t lose sight of that,” said Michael Liersch, head of wealth and investment management consulting and planning at Wells Fargo.
There is a behavioral benefit to contributing, he said. If you break the habit of doing this and the match comes back, you could miss. “You don’t want to miss that opportunity when the light switch comes back on.”
Should I reduce my 401(k) contribution?
If you have an idea of a percentage of your income that you need to save to retire comfortably at a given age and some of that was filled through a 401(k) match from the company, “this burden shifts to you as an individual,” said Nathan Voris, Director of Investments, Insights and Advisory Services for Schwab Retirement Plan Services.
Therefore, you should try to contribute more money to your 401(k) or other retirement savings accounts if you can afford it, Voris said.
Should we focus on emergency savings rather than retirement?
If your company is suspending its 401(k) match, chances are layoffs are imminent.
To prepare for possible layoffs, Brian Robinson, financial advisor and SharpePoint partner, recommended making sure you have enough money to get by on a strictly reduced budget for three months.
If you don’t, put your retirement savings on hold, but be sure to resume your retirement contributions once you reach your emergency savings goal, Voris said.
You can also continue to contribute to a 401(k) and access some of that money without facing early withdrawal tax penalties if you are not 59.5 and have been fired. But be careful — it could reduce your unemployment benefits since 401(k) withdrawals count as income in many states.
Elisabeth Buchwald is personal finance and markets correspondent for USA TODAY. You can FFollow her on Twitter @BuchElisabeth and sign up for our Daily Money newsletter here.