If you do not wish to defer (contribute money from your paycheck) into your 401(k) or you are not in a financial position to do so, you can opt out and stop deferrals at any time.
However, here are some things to consider before making the change:
With other savings or investment accounts, you pay taxes on the money you’re saving and on any earnings gained in real time. In contrast, your pre-tax 401(k) deferrals are taken from your paycheck before taxes, and any earnings will grow tax-deferred. You won’t have to pay taxes on those gains until you receive distributions (withdraw) from the plan.
With other investment accounts, you will always pay taxes on any capital gains you earn for that year. With a Roth 401(k), as long as you meet certain requirements, your earnings will be distributed to you tax-free.
Pre-tax 401(k) deferrals can reduce your taxable income and lower the amount of income taxes you pay in the year you contribute to the plan.
Your 401(k) account assets are protected in the event of bankruptcy or judgment creditors.
401(k) accounts have higher contribution limits than IRAs.
Your employer may offer an employer match or profit sharing contributions (which is essentially free money), which also won’t be taxed until you take a distribution.
Instead of opting out all together, you could choose to lower your deferral rate temporarily. Then, check in with yourself every few months to reassess your ability to contribute more.