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Here's what to do with your 401(k) during all the economic instability caused by coronavirus


The last month has been a roller coaster for the stock market. At the end of March, the S&P 500 lost 30% of its value from its record high, only to rally days later. But future rallies are less certain as more and more Americans file for unemployment. 

The high level of jobless claims, paired with the market volatility, has many Americans worried about the fate of their retirement savings. 

"We are seeing an incredible amount of fear out there — for our personal health, for our communities, for the economy at large and for our personal finances," Luke Neumann, a certified financial planner with Boston-based Crestwood Advisors, tells CNBC Make It

And while that's understandable, Neumann says it's important to remember that the best decisions are not made out of fear, so don't panic and sell off all your investments. 

In fact, it's worth keeping in mind that if you have not sold the stocks or bonds in your portfolio, you haven't really lost anything yet, says Samantha Gorelick, a New York City-based CFP at Brunch and Budget. Your 401(k) may be down, but it's just a loss on paper until your investments are actually sold for a lower value than what you originally paid. 

And millennials (ages 24 to 39) have a long time for those losses to turn back into profits. "The oldest millennials still have at least 20 years before they can draw from their retirement accounts without penalty, and the value of long-term investments will rise and fall throughout the decades," Gorelick says. 

That said, when it comes to your retirement savings, your game plan is going to depend on your situation. CNBC Make It spoke with a number of financial experts to get their advice on what millennials should do with their retirement accounts depending on their personal economic circumstances. 

If you're currently employed 

If you have a regular paycheck coming in, and you're not panicked about losing your job, contribute to both your retirement accounts and emergency savings as you would normally. You may even want to boost both contribution levels a bit if you can. 

Keeping three to six months' worth of expenses in a savings or money market account insulates you from potential loss of income if you do get laid off, Neumann says. "If you don't have this in place, now is the time to start building that cash savings account," he adds. Especially since you may end up needing that money for a wide variety of things, including medical expenses tied to coronavrius

At the same time, this is a great buying opportunity, Barbara Ginty, a CFP and host of the "Future Rich" podcast, tells CNBC Make It. "As a long-term investor, everything just went on sale for you," she says, adding that this is the time to increase your work retirement contribution and take advantage of the market dip. 

Continuing, or increasing, your regular contributions to your retirement accounts is a strategy called dollar-cost averaging. It's an approach that takes emotion out of the equation because you're continually investing, week after week, no matter what the market is doing. This way you avoid selling out during market lows and buying in at market highs.

If you are feeling nervous and you can't take your eyes off what's going on with the markets, it may be a sign your portfolio isn't calibrated to your risk comfort level, says Adam Kozak, a CFP with New-York based KPL Financial Group. Talk to your financial advisor, or if you handle your own investments consider reassessing how your investments are allocated, he adds. 

But don't take it too far, warns Eddie Perkin, Eaton Vance's chief equity investment officer. Psychologically, you may need to make a small adjustment to feel more in control, but don't overdo it, he says. Doing something small, like pulling back slightly on the level of stocks in your portfolio may act as a "release valve," Perkin says, but don't dump all your stocks.

If you fear you may be laid off shortly 

Now is not the time to try and time the markets if you're worried about losing your job. Instead of piling any extra money into your 401(k), you should prioritize increasing your emergency fund to prep for a potential layoff, Ginty says. "I would also start to cut back on your budget and make sure you are just spending on the essentials," she adds. Any extra money you can squeeze out of your budget now should go into savings. 

To help make any savings you have stretch as long as possible, you may want to look for some part-time employment or a side hustle to help bring in extra money or replace any income that you may soon lose. Companies like Walmart, CVS, Instacart and local grocery chains are hiring, and there are a number of remote jobs you could look for, too.  

"As the economy undoubtedly takes a turn for the worse, now is the right time to make sure your financial house is in order," Neumann says, and that means building up as much of a savings cushion as you can. 

When it comes to your existing retirement accounts, experts say that if you're worried about being unemployed, focus on contributing enough to take advantage of any employer match. If your employer matches up to 4% and you're currently contributing 10% of your salary, for example, you may want to consider cutting back to the minimum matching level. You can then add that extra money to your emergency savings, especially if you don't have three to six months' of living expenses saved yet. 

And although the markets have been volatile, resist the temptation to mess around with your current investments if you're a younger investor. "You can't predict the highs and lows, so when it comes to investing over the long term, it's best to stay with your plan and not overreact to short-term variations, " says Rob Williams, Schwab's vice president of financial planning. "If you're out of the market and miss the next high, it could cost you," he adds.

If you have already been laid off

If you've lost your job, you're not alone. About 6.6 million Americans filed new unemployment claims last week, the Labor Department reported Thursday.  And that number is expected to grow. 

But losing your job does mean you need to tighten your belt. In fact, Ginty recommends dramatically cutting your budget back to just the bare essentials because you'll probably be dipping into any emergency savings you have. You'll also want to file for unemployment and keep an eye out for the government stimulus check of up to $1,200 that most Americans should receive by mid-April.

This is not the time to focus on rebalancing your retirement accounts, Gorelick says. Generally, if you have more than $5,000 in your 401(k), you can leave your savings in your existing account.

If you have less, you may have to make some decisions now. Your employer can cash out your account if you have under $5,000 and send you a check. But typically employers will roll over your 401(k) balance into an individual retirement account if you have at least $1,000 unless you specify otherwise. Pay close attention to any paperwork or mail you may be receiving from your employer or your 401(k) plan provider. 

If you're unable to keep your money in your previous employer's 401(k), the best strategy is to directly roll that money over into an IRA so you avoid paying taxes on it, according to the National Association of Retirement Plan Providers. You don't have to keep the money with the same 401(k) provider either, you can transfer it to another brokerage or even a robo-advisor. 

The easiest way to roll over your balance is to request a "direct rollover," where they write a check directly to the company handling your new rollover or traditional IRA. At that point, you'll need to reinvest those funds. Most experts recommend using a target date fund because they're a diversified investment and they automatically rebalance to be less risky as you approach your retirement age.

If your 401(k) provider won't do a direct rollover or employer cuts you a check for your 401(k) balance, you have 60 days from the date you receive it to transfer it to another 401(k) plan or IRA without being taxed.

If you are out of work and facing a financial emergency because of coronavirus, it may be tempting to just cash out the money, but most financial experts advise this should be a last resort.

Under the recently passed Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, Americans who are facing financial hardships because of the coronavirus can take an early withdrawal of up to $100,000 from their retirement savings, including 401(k)s or individual retirement accounts, without the typical 10% penalty that's assessed for dipping in early. 

But while you won't get dinged with a penalty, you'll still have to pay income tax on that money. And remember there's an opportunity cost to using your retirement savings, so you want to be sure that you've exhausted all other options.

 "Accessing retirement plan accounts, especially for younger workers, can put a permanent dent in plan balances," says Timothy Ellis Jr., a certified financial planner with Memphis-based Waddell & Associates. Even a smaller withdrawal adds up in the long run. A $5,000 balance today could be worth $57,900 in 35 years, assuming a 7% annual rate of return.

At the end of the day, it's important to remember that economic downturns like the current one have happened before and markets have bounced back, so don't panic about your investments. "This might feel difficult or unprecedented, but remember that bear markets are a regular (if unfortunate) feature of investing, " Neumann says. "The global economy will re-start — we will find ourselves on solid economic footing once again."

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How to stay financially sound during the coronavirus pandemic