what are the pros and cons of still contributing to a 401k or roth ira if you know you’ll be severed? can you withdraw without penalty if saving run out? we have saving in an emergency fund but with a tight job market, it’s possible it’d run out.
are you still contributing? why? why not?
7 replies (most recent on top)
Well, you get a 400%return on the first 2%. Above that, you are saving money tax free, letting it compound tax free, and then withdrawing it at a lower tax rate in the future. Other than that not much benefit at all.
You should always be managing and maximizing your savings such that you have ample in non-retirement accounts to weather a severe downturn, such as 6-12 months looking for work. Remember you will get generous unemployment benefits as well.
You can borrow to $50k from 401k. I plan to leave my 401k with Chevron / Fidelity because it allows me to buy cvx stock (if i wanted to). You can elect to take cvx dividend only penalty free directly to your bank account outside of 401k. For example if you had 10,000 shares of cvx, you would get a quarterly, before tax , divdend check for $17,100 (10,000x $1.71 div). Not recommending it, but it gives you flexibility.
If you have any after tax dollars, you can rollover to ira or back door Roth IRA. I recently did this, that way i can access those dollars first without being suspended 90 days from the plan for in-service distribution.
I'm intending to continue contributing because of I do get laid off I won't be able to put new money toward ESIP. I'm very happy with the performance and want to squeeze as much as I can in there. I'll also fund my outside ROTH because that's tax free growth I won't be able to get back if I don't do it this year. I know that's more a luxury and totally appreciate necessity and you may not have that flexibility, but that's my thinking.
Get the match. You are still ahead of you pay the penalty because of pulling money out early.
because you get the account either way, and it continues to grow...regardless of CVX yee or not, those investments in stocks pay nicely over time...
At least contribute the 2% to get the max match.