With the way the market is behaving, you may be tempted to pull money out of your 401(k) right now or greatly reduce your contributions. If you’re considering such a move, please reconsider it.

Don’t stop saving for retirement. Even if you think you’re wealthy enough to forego putting money in your 401(k), you could end up seriously shortchanging your retirement savings potential by reducing your retirement plan balance or elective salary deferrals.

A 401(k) plan is a great retirement savings vehicle – and the fact is that most Americans have not saved enough for their retirement years. Additionally, if you withdraw money from a 401(k) plan before age 59½, you’ll face a 10% tax penalty (with few exceptions) and you may end up spending money today that could have enjoyed tax-deferred compounding in the future.

Don’t expose more of your money to taxes. Usually, contributions to a 401(k) are tax-deductible. If you decide not to make those contributions, here’s a consequence: the IRS and your state government will claim more of your income. So you’ll wind up with less money in your wallet today and less money in your retirement account.

Don’t lose out on a match. Will your employer match your contributions – say, a dollar-for-dollar match on the first 3% of salary? If you make $60,000 per year, 3% is $1,800. Would you throw away $1,800 worth of free money each year? You shouldn’t, especially given that this money will grow tax-deferred.

Do keep contributing steadily. It’s a good idea to keep up the dollar cost averaging and continue to make steady month-to-month or paycheck-to-paycheck salary deferrals. In all probability, this is central to your financial plan – and how will you amass the retirement savings you need if you stop contributing? Sure, there are other ways to build retirement savings, but dollar-cost-averaged contributions to a 401(k) represent a consistent, recurring way to get that job done.

If you contribute to your 401(k) plan through a dollar cost averaging approach, your investment dollar is buying shares at a lower price in this down market – and it is also buying more shares for your money. That could put you in a really good position when the market rebounds.

It’s a good idea to keep contributing even if you are falling behind financially. Should you pay down debts with your 401(k) assets? Only as a last resort. In fact, if you are looking at a bankruptcy or similar financial pressures you need to consider the documents to prepare before filing for bankruptcy. You may hire an expert from a bankruptcy law office to know what to prepare when filing for bankruptcy. Your 401(k) account is also a really good place to put some of your money (the 2008 contribution limit is $15,500, with a $5,000 ceiling on additional “catch-up” contributions for workers 50 and older).
Pension plan, IRA and 401(k) assets are protected in bankruptcy proceedings in most states.

 

The foregoing content reflects the opinions of White Oaks Wealth Advisors and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation.

Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns.

Securities investing involves risk, including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful.

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Investment advisory services provided by White Oaks Wealth Advisors, Inc. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation. Securities investing involves risk, including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful.