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As if the market weren’t doing enough damage to your 401(k) retirement plan, your employer might be hurting it too. Last month, General Motors announced that it would suspend its company matches to employee contributions to 401(k) plans. Frontier Airlines and Dollar Thrifty Automotive Group have followed suit in recent weeks. “It’s a tough position for a company to be in,” says David Wray, president of the Profit Sharing/401(k) Council of America. “Companies sometimes have to choose between layoffs & getting rid of the match.”
Keep saving in your plan. Companies that offer matches to 401(k) retirement plans do it as an incentive to get employees in the habit of saving. And you’ll need that habit now more than ever.
So don’t stop contributing because the company has stopped giving you free money. With compound interest, even seemingly small contributions can have a tremendous impact on your result.
Try saving more. Although there’s a lot of budget crunching going on, try to see if you can make up the difference in what your employer was contributing. Check what the maximum contributions are with your human-resources dept. Retirement planners suggest that savers put away 5% to 10% of their income toward retirement, if possible.
Consider an IRA. Although Individual Retirement Accounts are great investment vehicles, try maxing out 401(k) contributions first, as they generally carry fewer fees & greater tax advantages. A 401(k) will allow a saver to contribute more tax free per year.
Look Into an HSA. Health Savings Accounts are an underutilized product. Although HSAs are not intended to replace 401(k) plans, they help you save for future qualified medical expenses. They are “triple tax-free,” meaning that money put in, deferred & withdrawn from the plan comes tax-free.
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