Reply to Reducing 401(k) contribution -- s/o

Forum Index » Money and Finances

Reply to "Reducing 401(k) contribution -- s/o"

Subject:

Emoticons





More smilies

Text Color: Font: Close Marks

[quote=Anonymous][quote=Anonymous]Thanks all.  The thing is, when I run the numbers I come out several thousand dollars ahead by making a withdrawal now vs. just stopping contributions.

So for example, last year I put in 10,000.  I've achieved a 19% return this year, and got a company match worth 2250.  So that's a total of about $14,250 = that's a year's worth of contribution and gain.  If I take that year's worth out, subtract a 10% penalty and 28% taxes, I end up with about $9500 cash in hand.  [b]My 401K balance goes down $14250 but in the following year makes that back, as my contributions and company match continue.[/b]

If I stop contributions, that's 10K minus 28% tax, so I will have a little over $7000 case in hand.  Plus there's interest over the course of the year that I will be paying on my debt (since I don't get the benefit of more money all at once).  And I lose out on the 2250 company match plus whatever that money would have made in the 401K.

The big difference is the 10% penalty but that is more than made up for by the company match in the coming year.

[/quote]

You have no idea what you will make next year.  The market could tank and you wouldn't make as much.  Or you could have another unforseen major expense and find it more difficult to pay back the loan from your 401k.

The safest and most prudent thing to do is to reduce contributions to the point where you get the full match, as PP said.  Then apply the extra money toward your debt and don't allow it to get eaten up by anything else.  And I would set a goal -- e.g., maybe you only reduce contributions for 3 months or 6 months, and not the whole year.  Run the math on how many months you'd have to reduce and consider what's doable.  I personally would feel uncomfortable going beyond a year.[/quote]

Options

	Disable HTML in this message
	Disable BB Code in this message
	Disable smilies in this message

Review message

Search Recent Topics Hottest Topics