The COVID-19 (coronavirus) pandemic has had a major impact on the global economy. During this time, the stock market has experienced its share of ups and downs, which has had an effect on 401(k) accounts, as well. If you have a 401(k), you may have noticed a drop in your account balance, with funds allocated in stocks more likely to see a decrease than funds that are in bonds. With so much economic uncertainty surrounding us today, we’ve put together five tips to help you protect your 401(k) from going off track.
1.) Try Not to Make Emotion-Based Decisions
In a time like this, it’s difficult not to panic, but remember – 401(k) accounts are set up for saving long-term vs. short-term, day-to-day trading. Even if your account balance has dropped, it will likely rise again once the economy bounces back. Also, try to avoid impulsive decisions, such as withdrawing your funds. Early withdraws are considered taxable income, and are typically subject to a 10% penalty fee. However, the recent passing of the new stimulus package has waived penalty fees on withdraws, but still requires you to pay back the taxes over the course of three years. In the long run, you will need to put away even more money to make up for the loss.
2.) Talk to a Financial Advisor
If you don’t have a financial advisor already, your employer may be able to assist in helping you find one, specifically through the organization in which your 401(k) account is set up. There are also many online resources, such as SmartAsset, which is an online tool that matches you with financial advisors in your area, based on your needs. Once you find the right financial advisor for you, sit down with him or her and review your plan to see if any changes need to be made.
3.) Have a Cash Reserve on Hand
If you’re concerned you may wind up in a situation where you’ll need access to cash, building an emergency fund is the way to go. Most financial experts recommend that cash reserves cover three to six months’ worth of expenses, but it is ultimately unique to your personal financial situation and what works best for you.
4.) Look Into a 401(k) Loan
If building an emergency fund is not financially an option for you and you need cash now, taking out a 401(k) loan may be your best bet. The stimulus bill recently passed by Congress has loosened up some of the restrictions around 401(k) loans, with the option to borrow up to $100,000 from your account (this is double the normal amount). However, many financial experts suggest you consider this option as a final resort, since any funds you take out will not be earning you an investment.
5.) Keep Your Contributions Consistent
If you can afford to do so, keep your financial contributions to your 401(k) consistent enough to keep fees low and receive your full employer match. Think long-term, and what it could do for you in the future vs. what we’re dealing with now. Plus, since the market is down and stock prices are lower, you’re actually getting more out of your investment than you typically would.
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*This content is for informational purposes only. You should not construe any such information as legal, tax, investment, or financial advice.