Should I build an emergency fund or invest for retirement?

My company has gone through several rounds of layoffs. Although, I already have a comfortable (6+ month) emergency fund, I decided to stop the after-tax contributions to my 401K, which is 7% of my paycheck, in order to further beef up my emergency fund in case I should find myself out of work in the near future. My intention has always been to invest the differed contributions once things seem to have turned around; however, I only recently heard that you can take hardship withdrawals from your 401K in times of need. Would I be better off continuing to defer my after-tax 401K investments in order to temporarily beef up my emergency fund, or should I re-establish after-tax contribution with the understanding that, if my work situation were to change, I may need a hardship withdrawal from my 401K should I exhaust my emergency fund?

Retirement, Investing, 401(k), Taxes
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May 2016
84% of people found this answer helpful

A six month emergency fund is pretty good. 

Since you mentioned after-tax contributions, are you eligible to contribute to a Roth IRA account?  A Roth IRA would give you the ability to save up to $5,500 ($6,500 if age 50 or over) and the flexibility of withdrawing contributions without penalties.  

You didn't mention, but if you have any credit card or unsecured debt you might want to divert your additional savings that way while you are working.  Going into a layoff debt free will help your emergency fund last longer.

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