Coronavirus, Unemployment, and Your 401 (k)
Richelle Hofer, CRPC®, ChFEBCSM, AWMA®, AAMS®
Wealth Advisor, RJFS
When South Dakota announced the state’s first confirmed cases of COVID-19, life as we know it changed in some way for most of us. Pre-pandemic, my mornings could be a little hectic as the family got organized for the day. I would dress in a business suit for my 30-minute commute to downtown Sioux Falls and a schedule filled with face-to-face meetings. Clients were greeted with a handshake, then we’d sit together, talking, laughing, and sometimes crying, because finances touch every area of life. We would often share a hug before parting company.
Today I get to sleep in a little before slipping on my yoga pants for the five-second commute to my basement office. I greet clients for our meetings via zoom with a wave to the webcam. While we still laugh and cry, there is a feeling that something is missing. There is just no substitute for that hug of support before we sign off.
I am grateful that Cornerstone’s technology and infrastructure allowed us to quickly pivot and continue to serve clients and conduct business as usual while working remotely. Not everyone has been that fortunate. According to wallethub.com, south Dakota saw a jump of 1,942.54% in unemployment claims from the start of the COVID019 crisis versus last year.1
One decision you will have to make if you have lost your job is what to do with the money in your 401(k) plan. You have several options, each with pros and cons:
- Leave the funds where they are – May not be the best choice since you will usually have more investment options and much more control over your investments if it is inside your own IRA. Pros are that you may like the investments offered in the plan, and you’ll avoid incurring a taxable event or any fees related to leaving the plan.
- Cash out and take the money – Almost never a good idea, as you’ll have an immediate tax bite AND you’ll miss out on the continued tax-deferral of your 401(k) funds. A pro is having immediate access to your funds if you need them.
- Roll the funds into an IRA or your new employer’s retirement plan – If you don’t follow federal rollover rules when it comes to an eligible rollover distribution there is a mandatory 20% federal income tax withholding. There is also a potential for higher costs and fees than employer-sponsored plans. Be sure to consider all of your available options and the applicable fees and features of each option before moving your retirement assets.
Some other things to think about:
Review your health insurance options. While you may have the option to keep your employee health plan for a period of time, it’s temporary and can be expensive. If you can, it may be less expensive to join a spouse’s plan.
Review monthly expenditures and available cash so you know how long you can make ends meet. It may be possible to temporarily reduce monthly payments, as some banks, credit card companies, and other institutions are allowing customers to defer payments because of COVID-19.
Losing a job is always painful, but can be particularly intimidating when it occurs in the midst of a pandemic and economic downturn. Don’t let emotion override reason when it comes to financial decisions. Consider all of the factors and seek out reliable, objective information and guidance from your tax professional, plan administrator and financial planning professional.
If you are retired or nearing retirement and wonder if you have all the right pieces in place, or if you have been suddenly forced into a job change and need help assessing what to do with your old 401(k), we are here to help. Call Cornerstone today at 605-357-8553.
You can download the article as seen in Sioux Falls Woman Magazine here.
Need to change jobs? Read five tips to help you redesign your work life.
As appeared in Sioux Falls Woman Magazine, August/September 2020.
Any opinions are those of Richelle Hofer and not necessarily those of Raymond James. This information is not intended to be a substitute for specific individualized tax, legal, estate, or investment planning advice as individual situations will vary.
This information is general in nature and is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Keep in mind that investing involves risk and you may incur a profit or loss regardless of strategy selected.
Raymond James is not affiliated with and does not endorse Sioux Falls Woman Magazine.