How to shoot yourself in the foot

Dear Liz: I want to stop contributing to my 401(k). How do I cancel it and withdraw my funds?

Answer: You can stop contributing to most workplace retirement funds by contacting your human resources department. You typically won’t be able to withdraw the money, however, unless you can prove a hardship or you leave your job.

You should think long and hard before you discontinue your contributions, in any case. For many workers, contributing to a 401(k) is their best shot at a comfortable retirement. You may be unsettled by volatile investment markets now, but over time a diversified mixture of stocks and bonds should give you the returns you’ll need to overcome inflation and have a reasonable nest egg.

Not contributing to your 401(k) could mean giving up free money in the form of a company match and could trigger a larger tax bill, since your contributions usually are tax-deductible. Money saved within retirement accounts, including 401(k)s and IRAs, is also protected from creditors should you ever be sued or have to file for bankruptcy.

If you’re disgruntled with your plan because you think the fees are too high, ask your employer to look for a more reasonable-priced option. Now that 401(k) administrators must fully disclose their fees, many companies will be looking for better deals.

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  1. The writer doesn’t say why he wants to leave his company plan. He might have a low-wage job and have decided that an IRA or Roth IRA would be a better choice (in which case he needs to know that he can have both). He might have an emergency and need the 401(k) money (which might count as hardship). He might want the money to start a business that could pay for itself over time (which puts him out of luck). He might have been diagnosed with an illness and would prefer to spend his money rather than will it to someone (in which case he could stand to learn about charities who might deserve the money more than the people he knows).

    • Sure, or he might have decided to convert all his assets to gold bullion. I rarely hear good reasons for not contributing to or withdrawing money from a 401(k), but there are plenty of bad ones.

  2. Well if the company has no vested interest in changing for WHATEVER reason then you are stuck.
    I don’t trust my company to do what is right. Free money (matching amounts) isn’t free if the investments are bad..correct me please if I am wrong?

    Those fees have been there and are visable to corporate folks to see. YET the did it anyway.. My self directed IRA made more money even in the worst times than my wifes 401.. What is your view please..