Should I ever pass on my company’s 401K match?

Our parents and grandparents lived in a world where it was typical to work for a company for 30 years or more and then retire with a gold watch and a comfortable pension. Unfortunately, those days are almost gone as many companies have either done away with pensions or are in the process of doing so. In its place many companies now offer workers a 401K and often times they provide a 401K match of at least part of your contributions.

Practically any investment counselor who is worth following will tell you that it is always a good idea to contribute to your 401K at least up to the amount that your company matches. This is like free money and in most cases guarantees you a higher rate of return than any other type of investment you could make.

But is there ever a time you should pass on the company match?

What I am going to suggest right now may seem like heresy to some. The answer is yes. I believe there are times that you may want to consider passing on the match at least for a little while.

From early in my career I always contributed at least enough to my 401K to get my company’s matching dollars. I also had a decent amount of debt I was carrying. Not enough to be stifling, but enough that it seemed I could never quite get ahead. I always thought if I could just get over that hump and build up a little reserve, I’d be fine. But just about the time I had a little savings built up or made some progress on paying things off, Murphy would show up and I’d find myself back in the hole again. It’s a story that is all too common these days.

I started to listen to Dave Ramsey’s radio program on the way home from work a few years ago and I decided to get his book, The Total Money Makeover. One of the things he suggested was temporarily suspending investments so that you could focus all your attention on getting your debts paid off. I had never considered taking this “radical” step. When I started to think about it though I realized that if I did this at least for a short time, it would give me just enough extra in my pay that I’d be able to get that debt snowball rolling and actually make progress with getting our debts paid off.

I did that and it took us a little over 2 years to pay off all of our debts but our home.

So when would I consider temporarily giving up that company 401K match?

Need a specific goal

I would only suggest doing this for a specific goal. Paying off a debt that is paralyzing your finances would be one. Another would be if you have an impending emergency like a possible job loss or a looming medical issue and need to quickly build your savings.

You have a very specific plan

Do not do this unless you are working on a budget and have a very specific plan for your money.

A short duration

This also needs to be something you only do for a short time. If it will take you 10 years to achieve your goals then that is too long to suspend your retirement investments. If you can accomplish your goal in a few months or perhaps a year or two then this is something to consider.

Use it as motivation

If the thought of losing those matching funds scares you, Good!! Use that fear as motivation to accomplish your goal as quickly as possible so you can get back to investing.

Consider other alternatives

Make sure you have considered other alternatives. Is there anything else you could temporarily sacrifice in your budget? Could you work a second part-time job for a while?

Personally, I decided to suspend my investments as opposed to getting a second job, but maybe you could consider doing all three and accomplish your goal even quicker.

Evaluate your current investments

I decided to take this course because I had done a decent job of saving in previous years, so I felt I could suspend my investments for a couple years to accomplish my goal without it harming my long-term goals. If you are getting closer to retirement age and don’t have much in the way of savings you might not want to take this action.

A rare but viable option

Generally speaking the experts are right. A 401K match is a great benefit and is really free money. Rarely should you consider passing on such a good deal. There are however circumstances when I believe it is a viable option. It should only be done if you are very focused, you have a plan and you will be able to accomplish that plan in a reasonably short time. If that’s true then temporarily suspending your 401K investments might be the snowflake that gets your snowball rolling.

If you have a company 401K match available, are you taking advantage of it now?

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