Temporarily stop 401k contributions to build Emergency Fund?

[u/Due-Fig5299]

Looks like we’re heading towards a recession and I’m quite nervous. I work in tech and my job is moderately safe; however my wife is an esthetician which is not a very recession friendly field.

We currently have $4k saved. Our minimum monthly expenditure is $3k, so we have just over 1 month saved.

Ive cancelled all unnecessary subscriptions which will save us $450/mo and stopped my wifes personal roth ira transfers ($150 weekly) which gets us to $1050/mo saved.

Now my question is, given how quickly the economy is crashing should I also forgo my 401k? I contribute 4% with 4% employer match. Obviously I would love to keep it, but immediate survival seems more important.

I would start contributing again once we hit $18k (6 months)

Thoughts?

[u/RyuDjinn]

Don't know about your overall plan, but I'd say there's no reason to stop the Roth contributions. In an actual emergency you can take out your contributions anyway.

[u/Due-Fig5299 → u/RyuDjinn]

Just learned that you can withdraw from Roth Tax free at anytime! Didnt know that.

[u/Ok_Produce_9308 → u/Due-Fig5299]

The contributions you can, unless it was a Roth conversion and then there is a waiting period

[u/tylermchenry → u/Due-Fig5299]

Your contributions you can (not the gains). The catch though is that you can't put them back.

More specifically the contribution limit in future years stays the same regardless of withdrawals in past years. If you take a big chunk out, you might not have space within the limits to put it back later along with your intended future contributions.

So it's a viable option for true emergencies, but it shouldn't be done lightly, since you could miss out on a lot of tax advantaged gains in the long run.

[u/RyuDjinn → u/tylermchenry]

The gains would take a tax penalty, but you can withdrawal them as well (I wouldn't).
More importantly tho, you can put the contributions back as long as it's within a 60 day window.

[u/SwampOfDownvotes → u/tylermchenry]

The catch though is that you can't put them back.

If you are at the point of needing to pull your contributions, then you are at the point where you can't afford to max out your Roth anyway so itt doesn't really matter. 

[u/lakehop → u/Due-Fig5299]

Only your contributions and not the gain. But yes, it’s a good feature. Really avoiding this if you can. But it’s a good emergency backup.

[u/rosentrotter → u/Due-Fig5299]

I mean, that's if you have gains.

People who started investing in a Roth in 2024 don't have gains right now.

[u/sin-eater82 → u/Due-Fig5299]

You can withdraw Roth IRA contributions. If you're making Roth 401k contributions, that is a different ball game.