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Should I stop contributing to my 401(k)?

I am 55 years old. I have $502K in my 401(k). I have nothing in any other retirement program (except SS). Is it valuable or even worth it to stop contributing to my 401(k) and diving into a Roth? Should I take the tax hit on the 401(k) and roll some of it over into a Roth? I currently put the annual max into my 401(k).

Retirement Savings, 401(k), IRAs
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April 2017

This is a great question and congrats on hitting the annual maximum contribution limit! Does your 401(k) provide matching contributions? If so, the short answer is “no,” you should not stop contributing to your 401(k). Matching contributions from your employer is free money. I wrote an article called Don’t Neglect Your 401(k) Retirement Plan that goes into more detail on the benefits.

I highly recommend contributing to a Roth IRA, but generally, when it’s with new contributions as opposed to converting. Does your 401(k) allow for Roth contributions? If so, then your problem is solved. If not, start pestering your benefits department so they will make Roth contributions available. If you’re not familiar with Roth 401(k) plans, read my article Roth 401(k) Plans: 5 Things You Need To Know.

Depending on your income, you might be eligible to make Roth IRA contributions in addition to maxing out the 401(k). The ideal situation would be to max out both the Roth IRA and 401(k) so if you can, do it. Assuming you work for another 10 years, contributing to a Roth IRA each year will allow the opportunity for growth and provide a source of tax free withdrawals to supplement your retirement income. I wrote about the importance of this in my article called Tax Diversification. I hope you find it helpful.

Please note that this should not be considered investment advice and is only educational in nature. Please be sure to consult with your own legal, tax, or investment advisor regarding your specific situation.

Best of luck!

David N. Waldrop, CFP®

April 2017
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