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. . . The 401(k) Debate by Mark Wallace With the markets reeling and war accelerating, some employees are suspending their contributions. Read this first. Details magazine, April 2003 Even if you've been lucky enough to hang onto your job this year, attempting to maintain the lifestyle to which you've become accustomed has you tugging nervously at your collar. Your credit cards are maxed–lead weights in your wallet dragging you down. The savings account you've been dipping into for the occasional car payment is dwindling. But no matter how long you stare at that paycheck every other Friday, it's impossible to make it grow any bigger. Or is it? What about that untouchable little deduction line on your pay stub, the line for your 401(k)? There's a quick couple of hundred extra bucks you could take home every month for a while, maybe even as much as a thousand. Problem solved. It's not like your 401(k) is doing you much good anyway. "I pump money in there every two weeks and the value just keeps sliding and sliding," complains a friend. As Wall Street looks back on three down years, 9-to-5-ers in increasing numbers are considering temporarily suspending the contributions they make to their 401(k) plan. That extra cash could come in handy for a couple of months, even a year. Better to have it now, when you need it, then to sit on it for 30 or 40 years and wait for some felonious CEO to clean it out a month before you retire, right? "People would rather keep the money–invest in their house, buy a new car, or just put it under the mattress," says New York City tax accountant Jugal Mehta. If you're raking in cash, you can skip a few months and make it up by contributing more later in the year. With the maximum contribution for 2003 pegged at $12,000 (it's scheduled to rise over the next couple of years), a little shuffling looks like it should be no big deal. But don't call Fidelity just yet. Your 401(k) contribution isn't taxed till after you retire, which means that suspending it does involve some immediate pain–it increases your current tax load. Meanwhile, that money could be earning more money, also untaxed. (you could choose a more conservative fund for it to do this in). In addition, most employers match employee contributions to some degree with funds of their own. That's free money. And that's why experts like personal-finance author Stephen M. Pollan, author of Die Broke: A Radical, Four-Part Financial Plan, says that in the long run, suspending your 401(k) is "the dumbest thing anyone can do." -30- |
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