Have a 401(k) plan with a former employer? Here’s what you can do post-COVID.

Wickham Financial Services staff assists with 401(k) options amid COVID-19

Details around 401(k) plans have changed since COVID-19, so if you have a 401(k) account with a former employer, you have some options available to you.

Set It, But Don’t Forget It

The “set it and forget it” mentality is often cited as the key to a successful savings plan: establish a budget, regularly set aside determined amounts into your savings, and forget about that money until it’s time to cash-in. Though this has been solid advice in terms of creating an effective savings plan and retirement strategy, this philosophy can be damaging when it comes to old 401(k) accounts. As time passes, you become increasingly likely to forget or become apathetic about your older accounts. As a result, you can easily lose control over your cohesive, long-term strategy and hinder your financial progress.

Avoid the Cash-Out Temptation

There is also a temptation to cash-out upon leaving an employer. While forgetting your 401(k) accounts can be hurtful to your overall goals, the least favorable option is to cash-out. This can lead to tax liabilities, penalties, and other challenges to your retirement, all of which can ultimately stunt your financial growth and impede your steps toward successful retirement.

Instead, your best option is to view your old 401(k) funds as long-term investments; however, if you are like millions of jobless Americans amid COVID-19, you may be in need of emergency funds. If this is your case, there is a way to access the money within your 401(k) accounts and find some financial relief.

The Post-COVID 401(k) Account

Before COVID-19 swept across the country, 401(k) balances reached record highs with the average balance hitting $112,300 in the fourth quarter of 2019. By the first quarter of 2020, however, the average 401(k) balance plunged 19% to $91,400 while unemployment numbers surged and signs of recession were increasingly obvious.

In response, legislators introduced the CARES Act to offer various forms of financial assistance. Among the options presented in the CARES Act are eased restrictions for early access to 401(k) funds. If you can prove that COVID-19 has had a negative impact on your household finances, then you could be eligible to withdraw up to $100,000 from your 401(k) accounts.

Of course, accessing your 401(k) funds can provide some much-needed financial assistance in an unstable job market. That said, we recommend you avoid withdrawing that money unless absolutely necessary since every dollar you take can lead you farther away from your retirement goal.

Despite the easier accessibility, 401(k) money is best left as a long-term investment. If you can, be patient and watch the market. Resist the urge to sell, especially if retirement is years away, and allow your portfolio time to recover.

The Light Ahead 

In late July, new market numbers emerged, revealing some surprisingly optimistic news. In particular, retirement accounts looked fairly strong with the Dow Jones Industrial Average climbing up more than 300 points and the S&P 500 reporting higher than expected numbers. This data strengthens the recommendation to maintain a long-term investment to preserve your retirement strategy.

Details and new information are constantly emerging, especially in this post-COVID world. If you are struggling with how to best handle the money within your old 401(k) accounts, reach out to our team today. We at Wickham Financial & Insurance Services specialize in clear financial planning. We can help you decide the best option for your funds and develop a clear map to reach successful retirement.


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