What to Do When Your 401K Loses Money?

There is conflicting advice from financial experts about 401K savings and what to do with it. Many will say that you should contribute as much as allowed to the 401K savings plan; others think you should only contribute as much as your employer will match; and still others think there are better ways to invest your money than a standard 401K plan. But what do you do when you are saving in your employer sponsored 401K and it’s losing money?

You have several options, and you should pick one based on your unique situation and financial goals.

Stay The Course: 401k Is a Long Term Investment

Your first option is to do nothing at all when your 401K is losing money! There are many people who are of the belief that a 401K plan is there for long term investing. If you decide to move your money to another account because you see it lose money, you aren’t following long term investment strategies. The idea of a 401K retirement account is that it provides you with a consistent investment plan that does not depend on what the market is doing. You are sometimes investing when the market is down and sometimes you invest when the market is up- which means your contributions are averaged out and you will eventually see gains even if you’re currently experiencing losses in your 401K plan.

Roll it Over

If you aren’t satisfied to ride out the wave of 401K losses, you could always consider moving your retirement account into another savings vehicle. If your company writes a check for the funds in your 401K and makes it out to you – you will be subject to a 20% early withdrawal fee (not to mention a penalty on your income taxes). This is not the way to roll over a 401K.

If you decide to change how you save your money for retirement, you can roll a 401k into an approved IRA. The company handling your existing 401K would write the check to the trustee handling the IRA you are about to open, and you avoid any fees since the money is going into an approved retirement.

Stop Contributing Temporarily and Pay off Debt

Another option when your 401K plan starts losing money is to stop your contributions temporarily, and apply the money you WOULD have been investing in your retirement account to debt. This will help you pay down debt faster, and you aren’t adding money to an account that is losing money.

When circumstances change, you can begin your 401K contributions again, and with any luck, you’ll have a lot less debt by then!