Since the Covid is Forcing us to Examine Everything Else, How About Your 401K Contribution!
You may be reading that companies are reducing their 401K match in response to the economic fallout from the CoronaVirus.
Companies Hit Hard by Coronavirus Look to Cut 401(k) Contributions (WSJ – April 1st)
Here's What to Do if Your Company Cuts its 401(k) Match During Coronavirus (Money – April 2nd)
Employers may drop 401(k) matches as companies look to cut expenses (CNBC – March 31st)
First, a quick explanation: Many companies will match the investment you make in your 401K, up to a certain point.
For example: John makes 100K a year and contributes 10% of his salary - $ 10,000. (I know, I’m good at math.) If the company matches 3%, then they are throwing in $3,000 on your behalf – at their expense. Now you are seeing that during this pandemic, they are battening down the hatches and reducing expenses.
So, what do you do if this happens to you? If they take that $3,000 away? (I’m sorry if it does…)
Post something on Facebook! (Not helpful in a practical sense but potentially therapeutic?)
Say, “Ok, whatever; these things happen!” And keep making your contribution.
Suck it up, raise your contribution (to make up for the lost match). At least you keep your retirement projections in place
Reduce the amount that YOU are contributing…
One reason for contributing as much money as possible to your 401K (option 3) is that stock prices are as low as they’ve been in years. This means that if you continue to fund, you may be doing so at lower prices – which can be a wonderful strategy.
Here’s another strategy:
Reduce YOUR 401K contribution.
This would increase tax now, but you would have the funds to pay down debt or repurpose in a manner that might take another risk off the table.
Here’s why I feel this way:
Taxes are at all-time lows – however, the personal tax rates are due to “sunset” in 5 years. Which means they will automatically go back to pre-2017 rates. OUCH!
And what could cause taxes to rise – one might ask?
Well, in 2017, the combined costs of social security, Medicare, Medicaid and interest on our nation’s debt was 71 cents for every dollar taken into the treasury.
NOW – in 2020 it’s in the neighborhood of 92 cents per dollar – which leaves 8 cents for everything else. (FAA, EPA, Congress, Army, Navy, Air Force, Food Stamps, FBI, SBA, etc.)
Oh yeah, I forgot one. The Center for Disease Control! (They seem relevant right now.)
AND THIS WAS THE CALCULATION BEFORE THE COVID!
Look, I don’t have a crystal ball (here in my home office, anyway) and nobody really knows how this will affect taxes going forward.
Wait, I have an idea, anyway. It’s not going to be good…
For those of you who have the majority of your funds in tax deferred accounts (401K, IRA, etc.), this means you will be forced to take that money out – in the future – at (potentially) much higher tax rates.
So if paying taxes makes you want to scratch your eyes out and if making out checks to the IRS, is not your idea of a good time...and since the virus is forcing us to examine every other aspect of our lives...why not consider how you can prevent Uncle Sam from taking all your retirement savings!
Is this how you feel about taxes?
You shouldn't have to pay more than is necessary.
You shouldn't have to bear the burden. (Don't you hate how the middle class always get's hammered!
There ought to be a better way!
There is a better way. Watch below! (90 seconds)
So, here's the deal: People of all walks of life read these posts. (Much to the amusement of my 3 sons!) But, seriously, I know that each and every one of you has a different situation. If you would like a no-obligation, no-hassle, no-cost look at how some of these concepts might help you, choose a time a convenient time below. We'll do something virtual. I'll share my knowledge with you, but not my germs!