If I followed the logic of some financial experts, I wouldn't contribute to my 401(k) at all. They would say I shouldn't contribute anything until I meet other financial priorities first. I recently read a MarketWatch article that offered 5 reasons not to contribute to a 401(k). Although experts would say in my circumstance, it's not prudent for me to contribute to my company-sponsored retirement plan; I still kick in 6 percent of my income. I know I need to do better on my other financial goals, but it's not going to stop me from building up a retirement account.
Saving up for emergencies
The first reason why I should have an emergency fund, according to the MarketWatch article is because I don't have enough of an emergency fund. I don't have the recommended 6 to 9 months of income in savings. However, if I absolutely had to, I could take out money from my Roth IRA account. In a worst-case scenario, I could take out a 401(k) loan.
Getting no company match
Although my employer used to match my 401(k) contributions, they no longer do. I don't use that as an excuse not to contribute to the account. I like the fact I can elect for the money to go into a Roth 401(k), which means I won't pay taxes when I take the money out in retirement. I could receive the same benefits from the Roth IRA, but I like having some of my retirement money in mutual funds in a 401(k) because it makes me feel secure.
Making debt a priority
I agree that most people with a ton of debt should be investing in a 401(k). However, I started saving for retirement before I got out of debt. At that time, I saved only 3 percent for retirement. Saving a small percentage didn't get in the way of paying off my debt, but helped me to develop a positive habit. Sometimes it's more about establishing good habits.
Fearing future taxes
I have no idea what my federal tax bracket will be when I'm retired. Because I'm not sure, I simply let some of the money go into the regular 401(k) while the rest is investing into the Roth 401(k). As far as I'm concerned, I'm getting the best of both worlds. I can defer some of my income tax now and pay upfront for the taxes on the money that goes into the Roth 401(k).
Considering the fees
I think the hefty early withdrawal penalties would deter me from taking money out of my 401(k) until I'm retired. I won't increase how much I contribute to my 401(k) until I can afford to first max out my Roth IRA. However, I like having some money funneled into the 401(k) because it's a way of diversifying my resources.
Even though I don't have a lot of money saved in an emergency fund and I don't receive a company match, I still believe in my 401(k) plan. It doesn't hurt that I got a 16 percent return on my money in the last six months.
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