Transcript follows below:

This is Jeff Rose from Good Financial Cents with another good financial tip for you. Just the other day I had a client ask me, the client is currently involved in the 401K with their employer, and the employer has been slowly and steadily reducing their employer match. Finally, just recently they took away the match all together. No more free money, no more match. The only thing that goes in the 401K is what my client is putting into it. My client was a little bit ticked off, which I guess we all would be in that same situation. They asked me, “Jeff, my employer took away my match. Should I stop contributing to my 401K?” The easy and simple easy to that question is absolutely not. Just because your employer has taken away your match doesn’t mean that you need to stop saving for your retirement.

401k or Roth IRA

Now you could make the argument that instead of the 401K you could divert that towards a traditional or Roth IRA. But here’s the thing; you’re only going to be able to save $5,000 on a Roth or traditional if you’re under the age of 50, a $1,000 catch up for $6,000 if you’re over the age of 50. So that only allows you up to a certain limit to save to have some type of tax deferral protection.

As an employee, the only option that you have is a 401K. Just because your employer has taken away the match doesn’t mean you need to take away what you’re saving for retirement. It doesn’t give you an excuse or a reason to stop saving. That was a very simple answer and a very good tip. If your employer takes away your free money in the 401K, it does not give you the reason to stop saving. Save for retirement and make sure you’ve got a handsome and healthy nest egg waiting for you in your retirement years. This is another good financial tip for you!

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.

With the way the market is behaving, you may be tempted to pull money out of your 401(k) right now or greatly reduce your contributions. When you see your 401k continue to drop even though your adding money every paycheck, it may feel as if you are just throwing money away.  If you’re considering stopping to contribute to your 401k, please reconsider it.

Don’t stop saving for retirement. Even if you think you’re wealthy enough to forego putting money in your 401(k), you could end up seriously shortchanging your retirement savings potential by reducing your retirement plan balance or elective salary deferrals.

A 401(k) plan is a great retirement savings vehicle – and the fact is that most Americans have not saved enough for their retirement years. Additionally, if you withdraw money from a 401(k) plan before age 59½, you’ll face a 10% tax penalty (with few exceptions) and you may end up spending money today that could have enjoyed tax-deferred compounding in the future.

Don’t expose more of your money to taxes.

Usually, contributions to a 401(k) are tax-deductible. If you decide not to make those contributions, here’s a consequence: the IRS and your state government will claim more of your income. So you’ll wind up with less money in your wallet today and less money in your retirement account.

Don’t lose out on a match.

Will your employer match your contributions – say, a dollar-for-dollar match on the first 3% of salary? If you make $60,000 per year, 3% is $1,800. Would you throw away $1,800 worth of free money each year? You shouldn’t, especially given that this money will grow tax-deferred.

Do keep contributing steadily.

It’s a good idea to keep up the dollar cost averaging and continue to make steady month-to-month or paycheck-to-paycheck salary deferrals. In all probability, this is central to your financial plan – and how will you amass the retirement savings you need if you stop contributing? Sure, there are other ways to build retirement savings, but dollar-cost-averaged contributions to a 401(k) represent a consistent, recurring way to get that job done.

If you contribute to your 401(k) plan through a dollar cost averaging approach, your investment dollar is buying shares at a lower price in this down market – and it is also buying more shares for your money. That could put you in a really good position when the market rebounds. Such a plan involves continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through periods of low price levels. Such a plan does not assure a profit and does not protect against loss in declining markets.

It’s a good idea to keep contributing even if you are falling behind financially. Should you pay down debts with your 401(k) assets? Only as a last resort. In fact, if you are looking at a bankruptcy or similar financial pressures, a 401(k) account is a really good place to put some of your money (the 2008 contribution limit is $15,500, with a $5,000 ceiling on additional “catch-up” contributions for workers 50 and older).  Pension plan, IRA and 401(k) assets are protected in bankruptcy proceedings in most states.

Review your goals with your financial advisor.

Look at your time horizon. Look at your overall financial situation. Whether you are nearing retirement or far away from it, you will see that your 401(k) is a vital tool for pursuing your financial objectives. So don’t be discouraged by the short-term headlines; abide by the long-term plan created personally for you.

photo credit: NickNguyen

This was prepared by Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice.

Securities offered through LPL Financial, Member FINRA/SIPC

Being a financial planner for several years you think you’ve heard them all. Several years ago I was able to talk to individual who worked for a Fortune 500 manufacturing company. He was in his early 50’s and had been with the company for well over two decades. The company offered a decent pension plan and had just implemented a matching 401k about 8 years prior.

401k, What’s That?

The gentleman was offered an early buyout due to his company being merged with another and he was exploring his options. He made decent money and informed me of the cash buyout that he was being offered for the pension. Knowing the company had a decent 401k, I inquired to the balance he had accumulated. Here comes the bomb……nothing. Not one single dollar. Maintaining a straight face, I asked the simple one word question, “Why?” His response was, “I don’t invest into that stock market”. Knowing that his company matched dollar for dollar for the first 3% and then fifty cents on the dollar for the next 5%, I was in shock. I didn’t know what to say, so I didn’t say anything and just moved along with rest of the meeting.

Still In Shock

I’ve never forgot that conversation and made me wonder how many more people out there have matching 401k’s that don’t take advantage of them. Did he not know that his 401k had a money market option? He could defer 8% of his salary and not have to worry about the “stock market” and get free money from his company. Since my encounter with him, I make the diligent effort to ask anybody I come across that has a 401k if they are taking their free money. Even if they are not putting their money in the market, they can least take the match. That’s more return that they’ll get in their savings account any day of the week.

Understanding the Match

Using the example above, let’s say you work for the same company and make a salary of $50,000. In that case if you were to put 3% of your salary ($1500 for the year) then your employer would match another $1500. So you just doubled your money and now have $3000 saved towards your retirement. If you then save an additional 5%, that would be $2500 plus the company would match half of that for $1250. So if you were utilizing the full 8% of your salary, your own money that you would contribute would be $4000 and your employer would tack on $2750 for a total of $6750. Not including any market fluctuation, that is a 68.75% return on your money! And how much do you make if you don’t participate in the 401k. O. Zilch. Nada.

So go out and participate and take your free money and run off to a comfortable retirement!