Your 401(k) plans are creditor-protected by law. This is why it can be foolish to use 401(k) money to avoid foreclosure, pay off debt or start a business. In the case of future bankruptcy, your 401(k) money is a protected asset. Don't touch your 401(k) money except for retirement.
Any money you contribute to your 401(k), such as money contributed via payroll deduction, is money you can't lose. That employer can't take that money from you, even if you leave the company entirely. But there is another portion of your retirement plan you may not be able to claim: your vested balance.
After a stock market crash, the 401k or IRA's value is at a low point. Once again, the retirement plan owner can wait until the market recovers, which can take years, or they can take advantage of the bear market in a unique way.
The amount of cash that's in the fund when you retire is what you will receive as a pension. Thus, there is no guarantee that you will receive anything from this defined contribution plan. The fund may lose all (or a substantial part) of its value in the markets just as you're ready to start taking distributions.
The safest place to put your retirement funds is in low-risk investments and savings options with guaranteed growth. Low-risk investments and savings options include fixed annuities, savings accounts, CDs, treasury securities, and money market accounts. Of these, fixed annuities usually provide the best interest rates.
If you're invested in a money market fund or a fixed account and you're still losing money, fees may be the culprit. 401(k) plans often charge fees to your account balance, which cover things like plan administration and recordkeeping. The question is whether those fees are reasonable.
Some alternatives for retirement savers include IRAs and qualified investment accounts. IRAs, like 401(k)s, offer tax advantages for retirement savers. If you qualify for the Roth option, consider your current and future tax situation to decide between a traditional IRA and a Roth.
Pensions offer greater stability than 401(k) plans. With your pension, you are guaranteed a fixed monthly payment every month when you retire. Because it's a fixed amount, you'll be able to budget based on steady payments from your pension and Social Security benefits. A 401(k) is less stable.
Simply put, bond funds are much like stock mutual funds but come with lower risks and lower gains. So, to move 401(k) to bonds before a crash can be a smart decision since their main advantage is that they can usually withstand a stock market crash.
While the top performing funds in the 100 largest 401(k) plans have posted losses in 2022, their losses have been far less dramatic than those of larger market indices like the Nasdaq Composite or S&P 500. A financial advisor can help you plan for retirement and select investments for your 401(k) or IRA.
Your 401(k) grows on a tax deferred basis. You pay income tax on your withdrawals and a 10 percent penalty on withdrawals made prior to reaching the age of 59 1/2. If the dollar collapsed, the federal government might attempt to rectify the issue by raising taxes to settle debts.
Lets get one thing out of the way first: unless you have an IRS levy or other legal judgment against you, the US Government has no legal standing to seize the contents of your private retirement account, such as your 401k, IRA, Thrift Savings Plan, your self-employed retirement plan, or any other retirement plan.
There's more than a few reasons that 401(k)s are a bad idea, including that you give up control of your money, have extremely limited investment options, can't access your funds until you're 59.5 or older, are not paid income distributions on your investments, and don't benefit from them during the most expensive ...
But the rules differ from plan to plan, so check the specifics of your plan. A 401(k) is more secure from creditors. The 401(k) is more secure from creditors than the IRA, for example, in the event of a bankruptcy or an adverse lawsuit. However, the IRA or a spouse may still be able to come after the funds even then.
If you expect to be in a lower tax bracket in retirement, a traditional 401(k) may make more sense than a Roth account. But if you're in a low tax bracket now and believe you'll be in a higher tax bracket when you retire, a Roth 401(k) could be a better option.
The Bottom Line
There's no way of knowing if the stock market will crash in 2022. While there are absolutely concerning indicators, there are also signs of strength in the underlying economy. Wise investors should keep investing for the long run and stick to their overall financial plan.
If you're invested in a target-date fund, your investments should already be reallocated to less risky funds, like bonds, the closer you get to 65. If you're invested in index funds or mutual funds, you'll need to move your money to safer investments yourself.
What Is the Safest 401(k) Investment? The least-risky investment in a 401(k) would be either money market funds or U.S. government bonds (known as Treasuries). However, these investments will typically offer a very low rate of return and may not keep up with inflation.
The Swiss franc (CHF) is generally considered to be the safest currency in the world and many investors consider it to be a safe-haven asset. This is due to the neutrality of the Swiss nation, along with its strong monetary policies and low debt levels.
The Bottom Line. Moving 401(k) assets into bonds could make sense if you're closer to retirement age or you're generally a more conservative investor overall. But doing so could potentially cost you growth in your portfolio over time.
Turmoil in the stock market and runaway inflation has caused alarm among retirees as those living on savings see their retirement funds dwindle.
At Ramsey, we love Roth IRAs and Roth 401(k)s because the money you invest in them grows tax-free and you won't be taxed when you take out money in retirement.