Many individuals contribute tax-deferred income to their 401(k) retirement account through their job to take advantage of their employer's matching contributed funds. However, if you are trying to pay off debt, you may want to temporarily stop your 401(k) contributions to get some extra cash in your paycheck. Doing so is relatively simple, but there are certain things you need to consider and steps to take.
Visit your human resources department and ask to stop your 401(k) contributions. Each human resources department has different procedures for doing so. In some cases, simply asking is enough to end your contributions. Most often, however, you will need to formally request in writing that the deductions stop. Some companies even have online websites where you can go to manage your 401(k) contributions. Your HR department is the best place to go since its staff can tell you exactly what you must do in your company.
Ask your human resources representative to calculate how much more money you will bring home in each paycheck by stopping your 401(k) contribution. Don't assume that just because you are contributing 10 percent of your income, your checks will be 10 percent higher. That is because 401(k) contributions are made with pre-tax dollars, while you are paid after FICA (for Social Security and Medicare) and other taxes are taken out of your check.
If possible, set up automatic withdrawals from your checking account that will go to the lender of the debt you are trying to pay off. Make the withdrawal equal to the amount of extra money you will be bringing home as a result of your stopped contributions. You want to do this to ensure that the extra money you bring home really does go towards paying off debt instead of being diverted towards other expenses. That way, you can get back to saving for your retirement as quickly as possible.
Tips & Warnings
- Reinstate contributions by visiting your HR department as soon as possible after paying off debt. Saving for retirement is very important and taking advantage of the 401(k) matching funds and pre-tax investment option is key to ensuring you will have enough money to live comfortably at the end of your career.
How to Stop 401k Contributions and Put Money in Savings
People in a difficult financial situation often consider stopping contributions to their 401k retirement plans either permanently or temporarily. Many financial advisers...
If I Have a 401K at Work Can I Deduct Contribution to IRA
The Internal Revenue Service does not stop you from contributing to a traditional IRA if you make too much money, but does...