Often, the advice people here is that they should always contribute to their 401k plan. This advice is well-intentioned. Today, many Americans don’t have any retirement savings, which puts them in a dangerous financial position. The advice to save for retirement is, generally, a good idea.


However, there are circumstances where your financial priorities may need to be elsewhere. There are also conditions for when and how much you should possibly contribute. Let’s take some of these into consideration so that you can make the best possible plans for your 401k plan contributions.


When You Might Not Want to Contribute To Your 401k


First of all, you don’t want to contribute more than the yearly cutoff limit to your 401k. If you’re over 50 years old, you can contribute up to $26,000. If you’re under 50 years of age, you can contribute up to $19,500 in a year’s time. Beyond that, you’ll legally need to find another account for retirement savings.


Your 401k is a retirement savings plan. That money is meant for the future and shouldn’t be touched until that time, or you’ll end up paying fees and taxes that reduce its value. So, you only want to contribute to your 401k if your current financial situation is solidly handled, so you know you won’t have to dip into your retirement savings to get by before your retirement.


In practical terms, this means that you might want to hold off on 401k contributions until you have saved an emergency fund worth three to six months of your living expenses. This emergency fund will keep you from having to dip into your retirement savings early.


You may also want to wait if you don’t yet have enough money for your health insurance since that is a top priority today.


If you are in debt, you need a plan for paying that off. Make sure your 401k contributions don’t get in the way of paying off high-interest debts.


Planning For the Future


Suppose your current financial situation is in good shape and you’re ready to contribute to a retirement savings account. In that case, a 401k is a great choice, especially if your company has a match program. While an IRA (independent retirement account) may be a good investment strategy depending on your interest rate options, taking advantage of the 401k match should always be a priority.


Once you’ve taken advantage of the 401k match, take a look at what retirement assets you have, like a 401k, IRA, or pension fund. Then look at how your returns are looking, and how much money you have leftover to possibly contribute, and decide between them based on which has the best returns and how much you are legally still allowed to contribute in a year’s time.