What to Do if Your 401(k) Match Is Cut

Some companies provide a match to your 401(k) contributions. However, when looking to cut expenses, employers may drop the benefit. If this happens, you could miss out on funds you were planning to accumulate in your account. It might also be a good time to evaluate your retirement plan and adjust as needed.

Here’s what to do if your 401(k) match is eliminated:

— Understand the context.

— Take care of your immediate needs first.

— Contribute more if you can.

— Think about an IRA.

— Maintain a long-term focus.

Even if your employer reduces its contribution to your 401(k), there are some steps you can take to stay financially stable and plan for retirement. Follow these guidelines when mapping out a retirement savings plan after losing all or some of your employer’s 401(k) match.

Understand the Context

A frenzied outlook can lead to hasty financial decisions. Start by surveying the whole scene. “Given where the economy is currently and where we might be heading, you may see more and more of this kind of expense cutting,” says Jamieson Hopp, a financial planner at Millennial Wealth in Seattle. “Remember that a 401(k), at its core, has benefits beyond receiving a company match.”

There are tax advantages that come with a retirement account. A 401(k) plan will shelter any gains, interest and dividends that are earned while your funds are invested within the account. “Most companies will offer pre-tax and Roth contributions into your 401(k) or other retirement plans,” Hopp says.

[Read: How to Maximize Your 401(k) Match.]

Take Care of Your Immediate Needs First

Economic uncertainty presents an opportunity to review your current budget. That means you’ll want to make sure you can pay for your home, utilities, food and transportation. With rising inflation, you might find you are spending more than you did 12 months ago on the same items. You may need to stop saving temporarily or cut back to pay for immediate needs.

After looking at your budget, you may realize you can continue to save for retirement. “If at all possible, don’t suspend your own contributions,” says Andy Mardock, founder and president of ViviFi Planning in Bend, Oregon. “This will only leave you playing even more catch-up down the line.”

Contribute More if You Can

If you have enough room in your budget, you might be able to put more aside for retirement. “If you’re able, replace the employer match by increasing your own contributions,” Mardock says. This move could lead to higher returns later. You’ll be able to continue buying stocks at the same pace while the price is down. “Investing during down markets is one way that savers make lemonade out of lemons,” Mardock says. If you purchase stock for a low price now and it increases in value later, you’ll be able to reap the rewards.

You can also reach out to your employer to discuss the dropped match. “This can help you to understand the reasons for the change and can provide an opportunity to discuss other options for retirement savings,” says Andrew Lokenauth, founder of Fluent in Finance in Tampa, Florida. “In some cases, your employer may be able to offer other benefits or programs that can help you to save for retirement, even if they are no longer providing a 401(k) match.”

[Read: How Much Should You Contribute to a 401(k)?]

Think About an IRA

This could be a good time to look at other investment options, such as an individual retirement account. When compared to 401(k) plans, “IRAs typically have more flexible investment options,” Mardock says. If your current 401(k) plan offers very few ways to invest your funds, you might be inclined to set up an IRA.

IRAs differ from 401(k) plans in several ways. The contribution limit to a 401(k) is $22,500 for 2023. If you’re 50 or older, you can contribute up to $30,000 to a 401(k). For an IRA, you can contribute up to $6,500 in 2023. Those who are 50 or older are able to put up to $7,500 in an IRA.

There are two main types of IRAs. A traditional IRA is similar to a 401(k) in that the amount you place into the account reduces your taxable income. You won’t pay taxes on your contributions to a traditional retirement account now, but when you take out funds they will be subject to taxes. With a Roth IRA, you’ll pay taxes on the contributions now, but when you take withdrawals later the money is tax-free.

[See: 9 Ways to Avoid the 401(k) Early Withdrawal Penalty and Other Fees]

Maintain a Long-Term Focus

Even if your budget is tight, it can be helpful to avoid withdrawing from your 401(k) now. “Those retirement dollars are just as important as ever during difficult economic environments and markets,” Mardock says. If you make an early withdrawal, you’ll typically face penalties and tax consequences on the amount taken out.

Furthermore, by continuing to save for retirement, you could see benefits in several years or decades. Once the market comes up and your return increases, you’ll have a nest egg ready when you retire.

More from U.S. News

12 Ways to Avoid the IRA Early Withdrawal Penalty

A Guide to 401(k) Vesting

How to Take Advantage of 401(k) Catch-Up Contributions

What to Do if Your 401(k) Match Is Cut originally appeared on usnews.com

Update 12/21/22: This story was previously published at an earlier date and has been updated with new information.

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