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What Should I Do If My Company Cuts My 401k Match During Coronavirus Crisis?

A headline making its way through the recent news cycle is fueling a lot a questions about 401ks.

Should I keep contributing to my 401k even if my employer cuts the match during this virus crisis?

Let’s take a look and break it down.

Companies such as Amtrak, La-Z-Boy, and Mattress Firm announcing they’re cutting the matching money in their 401ks.  It’s likely there’ll be more to follow.  Companies in a cash crunch looking for places to cut back, and many view the 401k match as less painful than cutting health benefits.

Just because your company is cutting their matching contribution, doesn’t mean you should you cut yours.

If you’re having cash flow issues, then it could make sense.  Your first priority is to keep a roof over your head, the lights on, and food on the table.  Ideally you’d have an emergency fund to tap, but ideal and reality are not always compatible.

If you need the extra cash flow, turn it off.  Many companies let you make changes online with your 401k provider.  Otherwise, check with your HR department.

If you’re still getting your paycheck and your financial life is relatively stable, cutting your contribution just because your company cut theirs may not be the best move.  

So what if you don’t get a match.  It’s a nice incentive.  But the job of saving for your future is yours.  Not your employer’s.  It’s great if they throw in a bonus.  But you should be saving on your own regardless.  And the 401k is a tax advantaged way to do it.

You might even consider increasing your contributions now.  Not only to replace the lost match, but because there’s a great sale going on now.  The shares of the funds inside your 401k are priced lower than they were just a couple months ago.

Now your same contribution amount buys more shares.  A $100 contribution can only buy 10-shares when they cost $10.  But if they fall to $5, that same $100 can now buy 20-shares.  And I rather have more 20-shares working for me down the road, rather than 10, when they ultimately recover and trend higher.

Bottom line: If you need to stop your 401k contribution to increase your cash flow, think of it as temporary pause on retirement savings.  Nothing wrong with that.

If your cash flow is flowing, consider increasing your 401k contribution while shares are on sale.