Times are tough and thousands of Americans are facing financial hardship.
If you are still fortunate enough to have a job and are even luckier to have a 401k plan as part of your benefits package, making contributions to your 401k plan may be the last thing on your mind. However, it is important to maintain these types of contributions as they are an excellent tool for preparing for retirement and depending on your financial hardship, may actually may allow you to keep more of your money than you anticipated.
Should I contribute if I’m filing for bankruptcy?
If you need to file for bankruptcy protection, your 401k plan is legally protected and creditors cannot access your account to pay off debt. That money, your hard earned cash, will be there during and after the bankruptcy proceedings and until retirement.
If you’re facing bankruptcy, it is important to max out your contributions to ensure that some of your money will be going to you, not just to the people you owe.
What if I really need the money in my 401k?
Maybe you’ve got mounting medical bills, a possible foreclosure or you’re trying to prepare for your child’s higher education or a home purchase. You may not want to make contributions to your 401k, but want to withdraw money based on a qualified hardship withdrawal.
However, the golden rule is contribute to your 401k the maximum you can make without feeling any severe pain. Even if you are facing financial hardship, it will benefit your greatly in the long run to suffer a little bit more by having less cash in your paycheck and more money stowed away in your 401k for your retirement.