Here is a recent question from a reader….
My father-in-law is putting the bare minimum into his 401-k to get his 3% match from the company because he says his loosing more than his putting in. He wants to stop contributing because he says that the 401-k is losing so much in the down market. Should he keep investing in his 401-k or switch to another option like a Roth IRA?
Great question! Thanks! Your father-in-law should continue to contribute to his 401-k just enough to capture the company’s the match. No matter how badly the stocks in the 401-k are doing, he is doubling his money right off the bat. He’s making a killing even though the stocks are going down. He should continue to choose a well diversified portfolio of mutual funds in his 401-k. Your father-in-law should contribute to his 401-k first before any other investments. There is no other place in a bear or bull market that he will find a 100% return on his money even if it is just 3% of his income.
After your father-in-law puts in 3% and gets his match, he should stop contributing to his 401-k and start a Roth IRA if he meets the income eligibility requirements. He should max out a Roth IRA before continuing to contribute more than 3% to his 401-k. This will most likely help him in the long run save a lot his capital gains earnings from higher taxes in his golden years. Hope this helps…thanks again for the question.