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What Should I Be Doing With My 401(k)?

With the spread of COVID-19 and recent market volatility, it’s natural to wonder what you should do with your 401(k).

Articles by Nick Holeman, CFP®
By Nick Holeman, CFP® Head of Financial Planning, Betterment Published Apr. 06, 2020
Published Apr. 06, 2020
3 min read

With the spread of COVID-19 and recent market volatility, it’s natural to wonder what you should do with your 401(k). Betterment is here to help you navigate your financial life and work toward your retirement goals—whether the market is up or down. You can even join us for a live webinar on April 8.

While everyone’s situation is different, we’ve put together some guidance based on common scenarios. Please consult a financial advisor, such as one of our CERTIFIED FINANCIAL PLANNERS™, to develop a specific course of action.

What if I’m in a stable financial position?

If you feel stable and have a fully funded emergency fund, we strongly recommend that you continue saving in your 401(k) plan. For most people, retirement is years, if not decades, away. And even if you’re approaching retirement, you’ll be spending down your savings for years.

What if I don’t have an emergency fund?

An emergency fund (or “safety net”) is a foundation of financial security built for times just like this. It’s better if you can save without altering your 401(k) contributions. If that’s not possible or will take too long, it’s okay to temporarily redirect some of your savings toward one.

    • Create a Safety Net goal or Cash Reserve within your Betterment account.
    • Save an amount equal to 3–6 months of expenses as quickly as you can.
    • Once achieved, be sure to turn your 401(k) contributions back on.

What if money is tight right now?

We know times are hard for many people. First, we recommend looking for ways to cut back on non-essential spending. Little purchases can add up fast, and it’s better to give up a little now and continue the habit of saving. Additional steps:

What if I need to use my retirement funds?

If you have no emergency fund (or have used it all) and need money now, you may consider tapping into retirement accounts as a last resort. Fortunately, there’s a new Coronavirus-Related Distribution (CRD) that your plan may allow. This means you can:

    • Access up to $100,000 from your account, with no withholding and no 10% early distribution penalty.
    • Spread the income (and any income tax owed) over three years; but if you repay the distribution within 3 years, you won’t owe taxes.

The CRD’s flexibility means it’s likely more beneficial than a 401(k) loan. That said, if your plan allows loans, you may be able to benefit from relaxed loan requirements, such as higher loan amounts and deferred repayments. Please contact your employer to determine if either of these options is available through your plan.

What should I do if I’ve been furloughed or laid off?

If you’ve been furloughed, you are technically still employed, so you can likely take steps outlined above. If you’ve been laid off, you have additional 401(k) considerations.

Even if you can keep your 401(k) in your current employer’s plan, you may find that rolling over to an IRA provides you with additional flexibility. For example, you’re permitted to take a CRD from your IRA, just like the 401(k) CRD, which is a penalty-free withdrawal and can be repaid to avoid taxes altogether.

Rolling over to a Betterment IRA means you can continue to take advantage of the same investment advice and platform features you had with your 401(k).

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