Investing Retirement Planning 401(k) Plans When Is the Right Time to Stop Contributing to Your 401(k)? Make the most of your 401(k) by saving right up to retirement By Wes Moss Wes Moss Twitter Wes Moss, CFP, is the chief investment strategist at Capital Investment Advisors and has been named one of America's top 1,200 financial advisors by Barron's every year since 2014. He hosts "Money Matters," a popular call-in radio show in Atlanta, and has served as a financial expert for CNN, CNBC, and Fox Business. learn about our editorial policies Updated on March 24, 2022 Reviewed by Amilcar Chavarria Reviewed by Amilcar Chavarria Amilcar Chavarria is a fintech and blockchain entrepreneur with expertise in cryptocurrency, blockchain, fintech, investing, and personal finance. learn about our financial review board Fact checked by Ariana Chávez Fact checked by Ariana Chávez Ariana Chávez has over a decade of professional experience in research, editing, and writing. She has spent time working in academia and digital publishing, specifically with content related to U.S. socioeconomic history and personal finance among other topics. She leverages this background as a fact checker for The Balance to ensure that facts cited in articles are accurate and appropriately sourced. learn about our editorial policies In This Article View All In This Article Tax Breaks Saving Made Easy Employer Matching Good Saving Habits The Bottom Line Photo: Klaus Vedfelt / Getty Images If someone offered you free money, would you say no? Probably not. It may not seem like it now, but that's exactly what you're doing if you don't contribute to your 401(k). There are several benefits to a 401(k) plan, which we will review, and every financial planner will tell you to invest in one form of retirement account. So, instead, let’s cover an issue you are less likely to discuss—when you should stop contributing to your 401(k). Before we get there, it's worth taking a look at why you’re participating in a 401(k) plan in the first place. Here we cover a few of the best perks, in order to help guide your contribution decisions. Key Takeaways 401(k)s provide two separate tax breaks: You get a tax deduction for contributions, and your money grows untaxed until you take withdrawals.Many employers will match at least a portion of your 401(k) contributions, and that’s more or less “free” money. The tax-free growth and those extra employer contributions will stall when and if you stop contributing more money to your 401(k).Most experts recommend contributing to your 401(k) for at least as long as you’re working. Tax Breaks You get two tax breaks when you save in a 401(k) plan. First, the money you contribute is tax-deductible, meaning that what you contribute to a 401(k) this year will not be taxed as income this year. You will not pay taxes on the funds contributed until you withdraw the funds, typically in retirement. Your savings grow faster because they are tax-deferred. Your 401(k) enjoys compound growth untouched by the taxman until you retire and begin withdrawing the money. Saving Made Easy Investing in your 401(k) is “paying yourself first” because it ensures that you are supporting your future wealth. Steady saving is one tactic that millionaires employ. It’s also an easy way to save since your employer deducts your 401(k) contributions automatically from your paycheck so you won’t need to remind yourself to write a check. After a while, it’s likely you won’t even notice the money missing from your paycheck. Without a 401(k), you’d have to set up a retirement account and consciously take out your contribution every month, which, let’s be honest, won’t happen the month you take a spontaneous vacation, have to make an unexpected repair or purchase a big-ticket item. Note A 401(k) typically allows for much more generous savings than many other types of retirement accounts, such as a traditional or Roth IRA, which have rigid limits on the amount you are allowed to contribute annually. The 401(k)’s “forced savings” aspect also allows you to take advantage of dollar-cost averaging. Putting it simply, you consistently use the same amount of money to buy securities over time and this tends to lower the average cost of all of your shares. The market is consistently swinging, but putting money in on a regular basis via a 401(k) allows you to purchase shares when prices are low and will likely bounce back up later on. Since 401(k) investors are contributing to every paycheck, this is the default strategy. Employer Matching To encourage participation, in many cases, an employer will match a portion of your 401(k) contributions. Let’s say your company matches 70% of your 401(k) contributions up to 6% of your salary. If you make $100,000 and contribute $6,000 (6%) the company will pitch in $4,200. This is a deal you'd be wise not to pass up. Good Saving Habits Saving today via a 401(k) gets you into the habit of living frugally. For example, if you make $80,000 and contribute 20% to your 401(k), you’re actually living on $64,000. (Just be sure to watch out for the contribution limits.) Note A life-long practice of putting money aside for savings will pay off in your later years by allowing you to actually enjoy your post-career life on less income, which can help make your retirement money last longer. So what happens when you stop contributing to your 401(k)? You guessed it—most of the above benefits go away. No more reduction in taxable incomeNo more employer contributionNo tax deferral on your additional retirement savingsNo more paying yourself first Stopping your contribution dramatically slows the growth of your retirement money. It may feel good now to have that extra cash in your checking account, but when it's time to retire don’t you want to have saved as much as possible? The Bottom Line So when is the right time to stop contributing to your 401(k)? The most lucrative answer is the day you stop working. Take full advantage of the 401(k) plan your employer offers. A program that lets you save tax-deferred and, possibly, collect free money through an employer match can put you on the path to your dream retirement. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Internal Revenue Service. "Topic No. 424 401(k) Plans."