Reduce 401k contributions temporarily?

[Anonymous]

If your jobs are secure, maybe do a 401K loan, and pay that back instead of the debt.

[Anonymous]

Anonymous wrote:If your jobs are secure, maybe do a 401K loan, and pay that back instead of the debt.

This is a good idea. We’ve done this before and it worked well.

[Anonymous]

Anonymous wrote:Due to necessary home renovations and unexpected car repairs, we are currently about 20k in debt. We have been paying it off at rates higher than the minimum, but feel like we’re hardly making a dent. We recently met with a financial advisor who suggested we temporarily reduce the % of contribution to the 401k to what the employer matches so that there is more income to allow higher payments each month towards lowering the debt. Each of us has about $1M saved and don’t plan to retire for another 10 years . Would bump it back up once the debt level is manageable.

Would anyone concur with this?

Yes. And I would not need to pay a financial adviser to tell me this. This is “duh” territory.

[Anonymous]

In your case, yes. In most years you’ll earn more on your investments than you can contribute.

[Anonymous]

Anonymous wrote:In your case, yes. In most years you’ll earn more on your investments than you can contribute.

If you were younger, I'd say no because you would earn substantially over the years in a retirement account than you would lose in short term interest.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Due to necessary home renovations and unexpected car repairs, we are currently about 20k in debt. We have been paying it off at rates higher than the minimum, but feel like we’re hardly making a dent. We recently met with a financial advisor who suggested we temporarily reduce the % of contribution to the 401k to what the employer matches so that there is more income to allow higher payments each month towards lowering the debt. Each of us has about $1M saved and don’t plan to retire for another 10 years . Would bump it back up once the debt level is manageable.

Would anyone concur with this?

Yes. And I would not need to pay a financial adviser to tell me this. This is “duh” territory.

No, it’s not.

[Anonymous]

Yes, definitely. You should make a spreadsheet and predict when you can bump back up. If you are maxing them out and drop to employer match, it should be as soon as a year. Especially if you find somewhere else to cut spending.

[Anonymous]

You need to not just pay off this debt, but also establish a maintenance sinking fund and an emergency fund; this story suggests that they are both missing or underfunded.

[Anonymous]

Anonymous wrote:I would transfer to zero percent credit card first. Even with up front fees you’ll save something like $3k or 4k in interest over a year. Then if you still need to reduce contributions do that

+1. This.

[Anonymous]

Anonymous wrote:You need to not just pay off this debt, but also establish a maintenance sinking fund and an emergency fund; this story suggests that they are both missing or underfunded.

+1. The fact that you had to put 20k on a credit card for these things means you don't have an emergency fund.

[Anonymous]

Anonymous wrote:I would transfer to zero percent credit card first. Even with up front fees you’ll save something like $3k or 4k in interest over a year. Then if you still need to reduce contributions do that

Except they’re not making a dent in the debt, so once the 0% interest period is over (typically 18 months) they’ll be right where they started.

Yes, I would absolutely follow the advice given by the FA.

[Anonymous]

Any debt over 6% can be prioritized over saving for retirement. However, it can affect your tax situation/bracket. Also, it may be smart to still add to Roth to lock in current tax rates if you think taxes might go up in the future.