Author Topic: Reducing 401k contribution to increase savings  (Read 4994 times)

OneDogGP

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Reducing 401k contribution to increase savings
« on: June 03, 2014, 12:14:06 PM »
Ok, another dumb question for all you smarter than me people out there:

Right now I'm just about maxing out my 401k yearly contribution (as well as my Roth contribution) but my current company is in the process of being purchased by another company.  I've been pretty disciplined with retirement contributions, but as a result my savings account hasn't grown much through the years.  So now I'm concerned with the company being purchased and the potential for layoffs, etc. and want to boost my savings in case I go through another layoff situation.

I know I can withdraw Roth contributions if I get unemployed, but really really hate the idea of doing so because I try to keep retirement savings a "no fly zone".  So, in preparation of potential layoff, I'm considering reducing my 401k contribution in half so I can still get the match but boost my take home pay.  Thoughts?

Thanks in advance for your help!



lackofstache

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Re: Reducing 401k contribution to increase savings
« Reply #1 on: June 03, 2014, 12:17:48 PM »
I'd do that, if nothing bad happens, you've got until April of 2015 to put the money in...

catccc

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Re: Reducing 401k contribution to increase savings
« Reply #2 on: June 03, 2014, 12:25:09 PM »
Well, since you'd make this move to mitigate a potential loss of income, what would you need to cover a per month?  How long do you think you'd need to live off of savings before finding another job?  What are your current savings?  I don't think it is necessarily a bad idea, but I think you should consider very specifically how much you need your savings to be, and then get back to maxing it out as soon as you can.

MooseOutFront

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Re: Reducing 401k contribution to increase savings
« Reply #3 on: June 03, 2014, 12:36:34 PM »
I'd do that, if nothing bad happens, you've got until April of 2015 to put the money in...
This is not true for 401k money.  Is true for IRAs.

OP, I think your plan sounds reasonable for this specific instance.  Odds are even in a lay-off you'll end up with severance and credit cards to get you until the next gig, but some extra safety could be well within reason.

matchewed

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Re: Reducing 401k contribution to increase savings
« Reply #4 on: June 03, 2014, 12:53:11 PM »
That's what your emergency fund is for right? You do have one of those...

MooseOutFront

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Re: Reducing 401k contribution to increase savings
« Reply #5 on: June 03, 2014, 12:55:39 PM »
That's what your emergency fund is for right? You do have one of those...
While this is certainly true, I'm also guilty of over-saving and investing to the point that the designated "emergency fund" is pretty small and I would maybe need to take action if I could realistically see a period of unemployment on the horizon.

OneDogGP

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Re: Reducing 401k contribution to increase savings
« Reply #6 on: June 03, 2014, 12:55:55 PM »
I've got enough in savings to last about a year, which should be adequate for me to find a new job, but I also got hit by the recession years back which scared the heck out of me during year two of sending resume after resume out to the Internet "void" and hearing nothing back.  Watching my bank account slowly drain with nothing coming in really scarred me for life!

After a years worth of steady employment, (with my current company) I flushed the remainder of my savings and investment (non retirement) accounts to pay off my house and all other debt.  And then I found this website...

And now, you people have teased me with the idea of FI.  Now I want this.  Thoughts of selling my toys, cutting my expenses and being more frugal are always in my head.  Selling my house and all my crap and moving out of the city to the country to grow a garden, raise pigs and chickens sounds better and better each day!

But first I've got to work on my "badassity"...  :)

nereo

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Re: Reducing 401k contribution to increase savings
« Reply #7 on: June 03, 2014, 01:04:54 PM »
I've got enough in savings to last about a year, which should be adequate for me to find a new job, but I also got hit by the recession years back which scared the heck out of me during year two of sending resume after resume out to the Internet "void" and hearing nothing back.  Watching my bank account slowly drain with nothing coming in really scarred me for life!
well... you gotta find what's comfortable for you, but if you've got a year's savings that should weather you through a long unemployment, even if they don't give you a dime of severence pay.  Don't forget that if you exhaust the savings you can use your ROTH contributions as well.

Look at it this way; if you move money from your 401(k) to general savings what you loose is the amount you'll pay in taxes on that amount.  It's a bummer but not the end of the world.  But, if you keep putting it into your 401(k) you'll be closer to FI, and you'll just have to keep on your toes should the worst happen.
Regardless, I'd spend this weekend polishing your C/V, and maybe making some casual job querries.

Cheddar Stacker

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Re: Reducing 401k contribution to increase savings
« Reply #8 on: June 03, 2014, 01:07:56 PM »
I'd do that, if nothing bad happens, you've got until April of 2015 to put the money in...
This is not true for 401k money.  Is true for IRAs.

OP, I think your plan sounds reasonable for this specific instance.  Odds are even in a lay-off you'll end up with severance and credit cards to get you until the next gig, but some extra safety could be well within reason.

^ This.

Not a bad thought OP, although 1 year of expenses already saved in EF is a pretty nice cushion, so don't do anything too drastic.

If you cut some of your retirement savings, cut the Roth first for two reasons. 1) As Moose pointed out, you can pay that all the way through 4/15/15, but the 401K contributions must be made by 12/31/13 and they tend to have more regulations put on them, and 2) I'm a big fan of the tax deferral. I love Roth's, but only if tax deferred is already full or you have a more imminent need for the cash soon.

Also, the recession is long gone and I've seen a pretty solid job market out there. If you have solid professional skills and experience, and there is demand for your services, I wouldn't change a thing given your savings.

catccc

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Re: Reducing 401k contribution to increase savings
« Reply #9 on: June 03, 2014, 01:09:19 PM »
I think having a year's worth is reasonable.  I personally would keep the 401K contribution the same for now.

What kind of work do you do?  Would it be possible to do some temp/contract work to bring in some income while looking for a permanent position if necessary?

In a buy out situation, you might get severance pay...

OneDogGP

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Re: Reducing 401k contribution to increase savings
« Reply #10 on: June 03, 2014, 01:55:36 PM »
Cat - I'm an IT Admin guy, so while I could do IT consulting / temp gigs, I'm getting a little bit old (I'm 45 yrs now) and burned with IT in general.  Right now I'm in a phase of trying to figure out what would make me happy long term, and or possibly thinking along the lines of what I could do to setup a revenue stream so I could maybe regain my sanity!

Of course being a single guy with no kids and no alimony payments is a good thing, but the downside is that there's only one paycheck each month!

Mr. Frugalwoods

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Re: Reducing 401k contribution to increase savings
« Reply #11 on: June 03, 2014, 06:32:01 PM »
A one year emergency fund should be sufficient.

The answer to your original question does depend somewhat on your tax bracket.  Are you shielding this income from 15% tax or 33%?