In short, the answer is yes – absolutely. Here are the reasons why. Let’s assume you took a substantial hit to your 401K plan when the stock market plummeted approximately 5000 points.
The amount of stocks, bonds, mutual funds, and other holdings that your401K provider continues to purchase at a very low price will eventually increase in price once the stock market rebounds. If you do not contribute, you will be losing out on the potential increase your overall portfolio will obtain.
The economic rule of thumb is to buy low and sell high. Now is therefore the best time to make substantial contributions to your 401K, especially if you are a young individual who has just entered the business world or if you are five to ten years from retirement. It’s a good idea to check with your 401K plan provider or employer to determine what the maximum contribution is and, if at all possible, whether you can meet that amount annually.
If you cannot afford to maximize your contributions, you can determine what percentage you can afford per paycheck so that at least you are contributing something to the plan. For example, let’s assume you can only contribute 5%. Take time to set a household budget and then determine how much you can afford to contribute to your 401K. Perhaps you can start with 5% and increase it by 1% each year, until you reach the maximum allowed.
A 401K is non-taxable except in an extreme case wherein you are financially strapped and need to withdraw all the money. In this case, you will be taxed for early distribution. There are other options available to you. If you need money for your child’s college tuition or to pay the mortgage, you can apply for a hardship distribution.
You can also apply for a loan of up to 50% of the total amount accumulated. However, it would have to be paid back in five years and if you default three consecutive months in a row, it will be considered a distribution and is therefore taxable.
While most economists estimate that the current economic crisis will last approximately 18 months or longer, it is advised that you seriously consider whether or not you want to utilize this money. Remember, the 401K provider will continue to increase the amount of equity in your plan now, and at a time when stocks are at their lowest, you can lose out in the long term if you stop contributing.
Having a 401K plan is an important of your financial future. Whether you stop contributing or not is up to you, but it is recommended that you contribute something every paycheck so that when the economy turns around, you will at least have some funds available to you in case of an emergency.
This thing was constructed by
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Jim has worked as a Portfolio Manager & Financial Advisor since 1996. In May 2005, Jim founded WHI Financial Services, LLC, WHIFinancial.com, a Registered Investment Advisory firm, with headquarters in Texas. His primary focus is on portfolio management, financial & retirement planning, and financial advisory & insurance services. Jim manages investment portfolios & advises individuals, small to mid-size companies, and non-profit organizations on a variety of financial and business issues.
Prior to founding WHI Financial Services, LLC, Jim worked as a portfolio manager & financial advisor for two international investment firms. From 2001 to 2005, Jim worked with Prudential Securities (merger with Wachovia Securities, now Wells Fargo Financial Advisors), and from 1996 to 2001, he was working with Merrill Lynch. While working with both Wachovia Securities and Merrill Lynch, Jim enjoyed dual responsibilities as a portfolio manager, financial advisor and leader of the Professional Development Program.
Jim's responsibilities as leader of the Professional Development Program included, recruiting, interviewing, training, and overseeing the daily operations of all financial advisors involved in the Professional Development Program. Jim was responsible for managing between 10-20 advisors, while still managing his own client investment accounts.
In addition to his experience in the financial services area, Jim has been involved in several start-up companies. Jim's Philanthropic work includes serving as President/Treasurer of a private foundation established to provide non-profit organizations financial assistance, and Chairman/President of the Believe In Your Dreams Foundation. In 2007, Jim established the Believe In Your Dreams Foundation, a 501(c)3 organization, to help individuals who are suffering from life-altering circumstances beyond their control.
Jim has taught investment, insurance, and credit repair classes through continuing education at universities in CA & TX since 1997. Jim attended the University of Minnesota where his focus was Management & Marketing.
Jim has recently written two books, one called "Your Financial Lifecycle" a book which describes several key investment topics everyone will face throughout their life, and a book titled, "The Truth about Your Credit Score", which defines how credit scores are calculated and how you can increase your credit score, including templates which you can use to send to creditors.
Jim's books can be purchased on Amazon.com, via Author search, or by emailing him directly at JimWigen@GetWealthyStayWealthy.com.
In the Fall of 2011, Jim will be starting his radio show called, The Jim Wigen Show, Teaching You to Get Wealthy & Stay Wealthy. You can hear his shows through streaming audio by visiting JimWigen.com.
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