Hands off your 401(k)!

Folks who have recently been laid off: I’m begging you, DO NOT TOUCH YOUR 401(k) FOR LIVING EXPENSES RIGHT NOW!!!!

If you sell your 401(k) investments for cash right now, you’re going to lock in these awful market losses.

Plus if it’s a traditional account, you’re going to pay ordinary income tax on every dollar you take out, even if you’ve sold your investments at a loss!

Plus if you’re under 59 1/2, you’ll be hit with an ADDITIONAL 10% penalty tax on those withdrawals, on top of the regular taxes.

Once you layer in these losses and taxes, what’s left for you to spend on your living expenses is probably less than 50 cents on the dollar of what was in your 401(k) according to your 3/31/2025 quarterly statement.

If you don’t have enough emergency fund to carry you to your next job, look to credit card low rate promotions instead. No, you don’t want to take these offers for frivolous spending, but that’s not what we’re talking about right now. 0% interest or even 9% interest for 9-18 months will buy you time to find a new job and for market recovery.

“Balance transfer” offers often allow you to write a check to yourself, so you can put money in your bank account to pay the next several months’ mortgage or rent. Yes, there’s usually a 5% transaction fee, but again, that’s way less than you’ll lose from taking out your 401(k) funds now.

Put other necessary spending on a different card that has a temporary low rate on purchases. Don’t mix spending cards and balance transfer cards, because you usually get the promotional interest only on one type of transaction or the other.

AFTER you get a new job and the market recovers, you can look at rolling over your old 401(k) to a new employer, taking a loan from your new 401(k), and paying off that credit card debt. The interest you pay on a 401(k) loan from your current employer is paid back to yourself.

If you need financial advice that doesn’t require you to move your money during these volatile times, you can consult a fee-based financial planner. I’m offering 50% off my regular hourly rate to clients who are unemployed right now, because I know it’s hard to swallow another expense when your income just stopped, but it can prevent you from making much more costly mistakes with your hard-earned savings.

Together, we can get through this.