Coronavirus hit companies' 401(k) policies: What to do if your employer stops matching
Some companies have decided to suspend or reduce their matches in order to cut costs
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Employers who have had their bottom lines hammered by the coronavirus pandemic have begun to cut the contributions they make to their employees' retirement accounts, like a 401(k).
A 401(k) account is a tax-advantaged, company-sponsored savings plan, with defined contributions, typically made by employees and employers. In some cases, employers match some contributions.
For a regular 401(k) account, contributions are not taxed until their withdrawal, at which time they are taxed as ordinary income. In a Roth 401(k) account, contributions are taxed and withdrawals are tax-free.
Because many people are sheltering in place some have decided to suspend or reduce their matching policy in an effort to reduce costs.
So what should you do if you find yourself in this situation?
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Keep your money where it is, Credit Karma’s chief people officer Colleen McCreary, told FOX Business.
Despite heightened uncertainty and volatility across the market, experts have told FOX Business that it is advisable for most people to keep their investments where they are especially if they have a diversified portfolio with the ability to absorb market downturns.
McCreary pointed out that it is a nuanced topic because every company’s 401(k) plan is different -- some don’t match at all, for example -- but matching schemes can be "all over the place."
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Because of the “huge” tax advantages, McCreary said she strongly encourages employees to use a 401(k) account with or without a match.
“As long as you can do it, you should do it,” McCreary said. “Traditionally, 401(k)s generally have some really good investment options that you wouldn’t be able to do on your own.”
Most accounts do allow people to alter the amount they are setting aside for the account at any point in time. So reducing a contribution could be an option for someone who needs the extra cash in the near-term, McCreary said.
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It is estimated that about 55 million Americans had 401(k) accounts as of 2016. The average account balance among people in their sixties, who had worked for more than 30 years, was more than $287,000, according to the Investment Company Institute.
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