Ok….Say there is a couple that pretty much gets by paycheck to paycheck,but they have a pretty decent 401k.Say the workplace is making NO plans for a pandemic.What are the pros and cons of quitting the job and collecting that $ while there is still a chance.Of course they would lose a percentage of said $ and be out of a job.We may all be out of a job soon anyways right.Will the $ be there after a pandemic?I have heard it said that people should go to extremes if they truely believe tswhtf.Plenty of jobs will be available if we can live thru the coming storm….Any opinions will be appreciated.
Hi Malachi..I actually called and talked to an advisor for our 401K and asked him what he thought I should do to protect our 401K in the event of a pandemic…And no, he didn’t see surprised by the question. I don’t think I was the first person to ask. He suggested that we move our stock based investments into a cash account (some 401Ks have this option, ours doesn’t) He then suggested I move it all into bonds which should hold their value better than stocks, or so he thought. Of course you have the option of pulling out your money, but with a 10% penalty and then having to pay taxes on the rest, I am not ready to take this option (at least yet). I have decided that at the first signs of a pandemic I will move it all into bonds, and hope for the best. I wish I had the “cash account” option, as that would be my first choice.
Snowhound1 - Would you be able to access the funds in a ‘cash account’? Would it be something like a checking account? Without getting nailed with huge penalty?
As a sidenote, I would definitely call an advisor from the company that has your 401K and ask them what your best options are. Yours may be quite different than mine. :)
Thom…I don’t know the correct answer since ours doesn’t have this option, but I would say no. It would remain in the 401K, but in an area where it isn’t currently invested in the stock market. That is my understanding of what he was describing to me. All of the “rules” regarding your 401K would still apply. But as each company’s 401K has different options I would call someone that knows and ask them.
Snowhound - Thanks much for the response, I’ll make some calls to see if I can get some answers.
Snowhound1 at 9:10 You are correct. I happen to be a CPA, however my specialty is not personal finance. It is corporate finance, which is much different. I do know enough though to get by pretty well. My DH and I have done a few things within our 401k accounts. 1) We sold any security holdings (stocks and mutual funds). 2) We used the freed up money to purchase FDIC insured CD’s within the 401k account (we are earning interest on the CD’s). 3) We DID NOT take what is called a distribution out of the 401k account. This involves taking the actual money out of the account and has huge tax ramifications. I haven’t checked my percentages lately, but you can pay something like 40% to the gov’t in tax and penalties on a 401k distribution.
DH and I have decided to ride out the potential pandemic in this manner and we both believe that after a pandemic, the gov’t may allow you to access 401k funds penalty free to make mortgage payments, buy food, start over, etc.
Just remember, with every financial decision you make there is what is called an “opportunity cost”. It is the cost to you of not choosing another option. For example, the Dow recently hit an all time high and therefore DH and I may have been able to make a little money if we were in stocks. That was our opportunity cost - we gave up those potential gains in stocks to have our money in a safer place (CD’s). This is something each investor needs to consider.
Thanks…I guess some calls are in order..
If I’m not mistaken, some retirement plans require that a portion of the 401K be held in the company’s stock. I know my husband was vested after 17 years in the banking industry but he is still required to have a certain percentage of his retirement in bank stock even though he isn’t working for them any longer.
We keep most of our stuff in “cash” anyway. Yes, we wind up dealing with the opportunity cost of it, but for us it is the best option at this time.
Every plan is different and your best bet is to contact your HR department to get the company’s view, and then whoever is handling the 401 K for your company. Many plans do not have cash options, or they limit the number/dates when you can change your preferences.
If you leave the company, you can roll your funds over to a qualified IRA. This does not carry a penalty AS LONG AS YOU DO IT WITHIN 60 DAYS - and make sure you keep all the paperwork to back it up. Once it’s in an IRA you can pretty much do with it what you want, exepct, to cash it out and withdraw funds. You can hold cash, but you can’t withdraw without a penalty. Withdrawl penalties can be quite high, so you have to evalaute what you’d loose if say the stock market is taking what looks to be like a temporary nose dive but you stand a good chance of recovering a few years later (think 10/87 and post-9/11 crashes) vs the penalty you’ll get the next tax cycle (very immediate). Obivously if you need cash you need cash, but just plan carefully and make sure you are doing it according to the rules.
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