Question: My company is no longer matching my 401(k) contributions. I’m thankful that I have the job but wonder what I should do.

Jade Rockmann

Answer:

Dear Jade,

I realize it may not help to know that you are not alone. But you’re not… a growing number of companies are cutting their matches due to the current economic environment.

However, this does not mean that you should stop contributing to your 401(k). If anything, you should try to increase your contributions to make up for the missing dollar amount from your company.

Before doing so, I recommend that you get a copy of your 401(k)’s performance record for the last twelve months. And, note how many investment choices you have. If your options are limited to a few mutual funds and the company’s stock (if you’re working for a publicly traded firm), you might consider putting your money into a Roth or Traditional IRA. Or, if you already have an IRA, adding to it.

The advantage a self-directed IRA (Roth or Ttraditional) over a 401(k) is that you have an infinite variety of investment choices and you can change those investments as many times during the calendar year as you like.

Key factors to keep in mind:

• The maximum contribution to an IRA for 2009 is $5,000 if you are younger than 50 and if you’re over 50, then it’s $6,000. These dollar amounts are per individual; for a married couple, the contribution maximums are $10,000 and $12,000 combined.

Note: The above limits apply to the combination of both the Traditional IRA and the Roth IRA. For example, if you’re under age 50 and you contribute $3,000 to a Traditional IRA, then you can contribute only $2,000 to a Roth IRA and not $5,000 to each.

• Not everyone can contribute to a Roth IRA. Eligibility begins phasing out when your Modified Adjusted Gross Income (MAGI) is above $105,000 (for single filers) and above $166,000 (marrieds filing jointly). Single filers with a MAGI over $120,000 and marrieds with a MAGI over $176,000 cannot participate in a Roth. 

• For a Traditional IRA, the phase out starts at $53,000 and ends at $63,000 for single filers and for marrieds filing jointly, it’s $85,000 and $105,000. 

$TIP: You can still contribute to a Traditional IRA even if your income is above these caps; you just won’t be able to take a tax deduction for the amounts.

• Roth withdrawals are tax-free as long as you are at least age 59 ½ and have owned the Roth for a minimum of five years.

• The maximum contribution to a 401(k) for 2009 is $16,500.

• If being really self-disciplined is not your style, this is further reason to continue on with your 401(k) -- because the contributions are automatically taken out of your paycheck.

• If you have extra income from freelance work or a side business, look into opening an IRA SEP. The maximum contribution for 2009 is $49,000.

Bottom line: Don’t pull back on retirement savings just because your company did!

For Further Information: www.irs.gov.