Some people will suggest that it is a good idea to tap your 401k or stop making contributions when things get tight.\r\n\r\nI truly believe that should be the last course of action and we\u2019ll step through why.\r\n\r\nThe 401k was built with many advantages engineered into it.\r\n\r\nPolicy makers in Washington have truly tried to design a preferential investment vehicle and there are not many times you\u2019ll hear me compliment that group.\r\n\r\nNot only does the 401k have advantages but to attempt to stop contributing, or worse, withdrawing funds comes with significant downsides. The benefits only flow one way with this retirement account.\r\nKey Factors on deciding to stop contributing 401k\r\nstopping 401k contributions why?\r\n\r\nHere\u2019s why to keep contributing even during tough times: 401k Contributions are tax-deductible.\r\n\r\nYou need to shield today\u2019s earning from income tax. That makes such a significant impact on the final net worth of an investor. Paying taxes today works against the magic of compounding interest.\r\nEmployers often offer matches to contributions\r\n\r\nAs I explained in an earlier article employer matches are truly FREE MONEY. \r\n\r\nThe most common form of matching in a recent HR survey conducted at the end of 2018 was a one-to-one match for the first 3% of contributed funds. \r\n\r\nSome firms reported as high as 7% match and others are at zero.\r\n\r\nIf you are fortunate enough to work for an employer that matches, by all means, take full advantage.\r\n401k\u2019s provide additional Protection\r\nAdditional Protection of a 401k\r\n\r\nIf you fall on financial hardship and have to declare bankruptcy, most courts will protect your retirement accounts. \r\n\r\nThose funds will be protected from creditors. \r\n\r\nThe rest of your accounts are fully exposed, will be reorganized, and potentially liquidated to meet your debt obligations. \r\n\r\nThis protection will allow you to at least have a steady income producing portfolio while you build your nest egg back up.\r\nThe sole drawback is lack of investment opportunity\r\n\r\nIf the 401k plan selected by your company is truly terrible and the opportunity cost of investing outside of that plan is statistically superior (cost of funds, and historic performance) it may make sense. \r\n\r\nJust remember most funds gravitate to the average. \r\nCan you stop 401k contributions at any time?\r\nTalking to HR department about your 401k\r\n\r\nYes, it is your sole decision on whether you continue to contribute.\r\n\r\nIf you want to stop, you would go to your HR department and let them know that you want to reduce your percentage allocation to zero.\r\n\r\nJust please consider the above benefits before doing so.\r\n\r\nLost retirement contributions are very difficult to make up later!\r\nCan you stop 401k contributions temporarily?\r\n\r\nMaybe a better solution is to stop for a small period of time, allow funds to build back up in your checking account so you feel more financially stable. \r\n\r\nBut then return to actively contributing to your 401k, and try to make up for the lost time/dollars forfeited during the break.\r\nConclusion\r\n\r\n401k\u2019s are truly one of the most special investment vehicles.\r\n\r\nThey allow pre-tax contributions, the funds can compound over time, employers PAY YOU to contribute, and the funds are often protected if you were to fall on financial hardship.