So, your 401k match is gone. Here’s what you should do now.

https://www.bloomberg.com/news/articles/2020-06-09/pandemic-s-toll-on-your-401-k-is-probably-going-to-get-worse

With COVID, many companies are looking for ways to cut costs. A low-hanging, cost-saving, fruit for many companies is to do away with the 401k match. While good for the company in the short term, there is no way to sugarcoat how bad this is for the typical employee’s retirement.

But as I tell my sons, instead of dwelling on what you don’t have, let’s look at making the most of what you do! (which is very appropriate given I’m writing this on Father’s Day).

While I am not going to pretend that the loss of free money is a great thing, there are some advantages to saying bye-bye to this common employee benefit and diverting new 401k contributions to an IRA (Individual Retirement Account) until the 401k match returns. Using a Traditional IRA or Roth IRA can provide the following benefits that a 401k can’t (with much the same tax benefits):

  1. Almost unlimited investment options (401ks usually have limited choices)
  2. Lower fees (Fees can be lower than many 401ks)
  3. Easier access to funds (This is especially true with Roth IRAs)  
  4. Tied to you, not your employer (if you change jobs, you don’t have to move your IRA)
  5. IRAs are most often better for education funding than 401ks

There are some downsides to IRAs:

  1. No loan option (401ks can have a loan option, IRAs cannot)
  2. Traditional IRAs have income limits (if you have access to a plan at work) to be eligible for the deduction, 401ks do not (even Roth IRAs have income limits)
  3. 401ks may have greater creditor protection
  4. Lower employee contribution limits (for those under 50, the 401k limit is $19,500 vs. $6,000 for IRAs for 2020)

If your employer has stopped your 401k match, it may be a good time to diversify your retirement account types with an IRA. Fees and trading costs have come down so much over the last few years that many of these accounts are almost free. And other than the 401k loan option, the flexibility and control that IRAs give you can help you both before and in retirement. Times are tough! But as my dad always said, focus on what you can control, not want you can’t.