- According to a survey by Fidelity Investments, about 10% of employers have or plan to suspend their company’s 401(k) match.
- If you’ve lost your employer match, saving in an IRA before your 401(k) could be more beneficial, since IRAs have more investment options and lower fees.
- After you’ve maxed out your IRA, then start saving in your 401(k).
As the coronavirus pandemic continues to have big impacts on the economy and the stock market, companies are feeling a pinch.
Some companies have started to suspend employee matches within their 401(k) plan as a result. According to a survey by Fidelity Investments, about 10% of employers have already suspended their matching program — the system by which an employer “matches” a percentage of the employee’s contributions — or intend to.
Edward Gottfried, the director of product for Betterment for Business, sees this as a long-term change. “We have seen a number of companies who are considering what, if anything, they should do with their 401(k) plans and whether or not to take measures like removing match,” he says. “We’re cautioning employers to proceed carefully, because they won’t be able to undo it for another 12 months.”
If you’ve lost your match, it will likely be a year or more until it comes back. But, that’s not to say you shouldn’t keep saving — you might just change how you’re doing it.
Without a match, save in an IRA first, then save in your 401(k)
“For a lot of people, a match has been a big component of their ability to save more towards retirement,” says Bobby Glotfelty, a senior licensed financial professional with Series 7, 24, and 65 licenses at Betterment. If you’ve lost your match, he says, “it may change the order of operations of where you save.”
While you might have saved in a 401(k) first to get the full match, that might not be the best move anymore. “If you’re no longer getting the match and want more flexibility, look into putting more savings towards an IRA initially,” Glotfelty says.
“IRAs have more flexibility, and the cost might be lower,” he adds. Often, 401(k) accounts come with higher, less transparent fees than IRAs.
And, IRAs have an advantage in flexibility. They often have more investment types to choose from that wouldn’t be accessible in a 401(k). With more options, you can better adjust your risk and your investments to your goals better.
Consider a Roth IRA, if you’re eligible
Anyone who’s eligible for a Roth IRA could benefit from tax-free withdrawals in the future. Individuals earning less than $139,000, or couples earning less than $206,000 can contribute up to $6,000 to a Roth in 2020 — $7,000 if they’re age 50 or older.
Roth IRAs have a different tax structure than a traditional IRA or 401(k) — instead of making tax-deductible contributions now and paying taxes on your withdrawals later, you pay taxes on your contributions upfront and make tax-free withdrawals down the road. If you expect your income to be higher than it is now by the time you make withdrawals, experts recommend using a Roth. Note that Roth 401(k) plans also exist; you may want to check with your employer about whether they’re available to you.
Without a match, you might want to max out your IRA first, then your 401(k) with any additional retirement funds. “If you still have more to save, continue to saving towards the 401(k),” Glotfelty says. You can contribute up to $19,500 to a 401(k) in 2020, plus an additional $6,500 if you’re age 50 or over.
It’s important to keep up your end of your retirement contributions, even if you’ve lost your match. Nothing builds wealth in retirement accounts more effectively than time.
Download this complimentary “What to do with my 401(k)” guide to help you get started with adjusting your retirement accounts.