Why You Should Keep Contributing To Your 401K? | The Retirement Group

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 59, 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.1

Don't expose more of your money to taxes. Usually, contributions to a 401(k) are tax-deductible.2 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.1

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, a 401(k) account is 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).3 Pension plan, IRA and 401(k) assets are protected in bankruptcy proceedings in most states.4

Do review your goals with your financial advisor. Look at your time horizon. Look at your overall financial plan. Whether you are nearing retirement or far away from it, you will see that your 401(k) is a vital tool for pursuing your financial objectives. So don't be discouraged by the short-term headlines; abide by the long-term plan created personally for you.

This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of John Jastremski, Jeremy Keating, Erik J Larsen, Frank Esposito, Patrick Ray, Robert Welsch, Michael Reese, Philip Catalan, Brent Wolf, Andy Starostecki and The Retirement Group or QA3 Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

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http://www.theretirementgroup.com

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

Citations.

1 irs.gov/taxtopics/tc424.html x [11/7/08]

2 fool.com/personal-finance/retirement/2008/10/15/your-retirement-is-now-a-lot-more-complicated.aspx [10/15/08]

3 buffalonews.com/businesstoday/businessfinance/story/481670.html [11/2/08]

4 nolo.com/article.cfm/pg/2/objectId/1E5D82D5-6576-491F-B763445E2CB1BE60/catId/462A9501-9B21-4E09-A08C5A7B8AF51A79/213/161/CHK/ [11/7/08]

Why You Should Keep Contributing To Your 401K? | The Retirement Group

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