Honestly, checking your 401k right now feels a bit like looking at a car wreck. You want to see how bad it is, but you also kind of want to look away and pretend it isn't happening. We’ve had a wild few years. Between the Fed’s obsession with interest rates and the constant "will they, won't they" drama regarding a recession, your retirement account has probably been through the ringer.
Most people are paralyzed. They see the numbers dip and their first instinct is to pull everything out and put it under a mattress. Don't do that. Seriously. Panic is a terrible financial advisor.
If you’re staring at your dashboard wondering what to do with 401k right now, the answer isn't a one-size-fits-all "buy the dip" or "sell it all." It’s about math, age, and how much sleep you’re losing.
The big mistake everyone makes when things get shaky
Most people think "doing something" is always better than "doing nothing." In the world of 401ks, that’s usually a lie. Vanguard’s 2023 "How America Saves" report showed that participants who traded during periods of high volatility almost always underperformed compared to those who just sat on their hands. It’s boring advice, I know. But it works because timing the market is a fool's errand. Even the pros at Goldman Sachs or BlackRock can't consistently pick the exact bottom of a downturn.
If you’re 25, you have decades to recover. If you’re 62, the math changes.
When the market drops, you aren't "losing" money unless you sell. You still own the same number of shares in those index funds or ETFs. You’re just seeing a lower price tag on them today. Think of it like a house. If your neighbor sells their home for 20% less than it was worth last year, your house didn't physically shrink. It’s still a house. You only lose if you list it today and take the check.
Rebalancing is the secret weapon nobody uses
Here is something you actually can do. Check your allocations.
Let's say you started the year with a 70/30 split between stocks and bonds. If stocks got crushed, your portfolio might now be 60/40. This means you are "underweight" in stocks. To get back to your original plan, you’d actually sell some bonds (which held their value better) to buy more stocks (which are currently "on sale"). It feels counterintuitive to buy the thing that's dropping, but that is the literal definition of "buying low."
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Figuring out what to do with 401k right now if you just left a job
This is where things get messy for a lot of people. You quit or got laid off, and you have this "zombie" 401k sitting at your old employer. You have a few real options here, and "cashing it out" is almost always the worst one. Unless you are literally facing eviction, taking the cash means you’ll pay immediate income tax plus a 10% penalty if you’re under 59 ½. That’s like setting 30-40% of your money on fire for no reason.
Moving it to your new employer’s plan is fine, especially if they have low fees. Some big companies like Vanguard or Fidelity have institutional-grade funds with incredibly low expense ratios—we’re talking 0.02% or lower. If your new job has those, moving the money there is a solid move. It keeps your life simple. One login, one statement.
But sometimes, a Rollover IRA is better.
In an IRA, you can buy almost anything. Individual stocks, specialized ETFs, or even REITs. Most 401ks limit you to a "menu" of maybe 15 to 20 funds. If that menu sucks, or if the fees are high, get your money out of there. Roll it into an IRA at a major brokerage. It’s a "direct rollover," meaning the money goes from the old plan to the new custodian without you ever touching it (and without the IRS taking a cut).
The Roth conversion trap (and why it might be genius)
If the market is down, it’s actually a pretty interesting time to think about a Roth conversion.
Imagine your 401k balance dropped from $100k to $80k. If you roll that into a Roth IRA now, you pay taxes on the $80k value. Then, when the market eventually recovers and that money grows back to $100k and beyond, all that growth is tax-free. You’re essentially paying the "tax bill" while the "property value" is low. It hurts to pay the taxes now, but your future self will probably want to kiss you for it.
Why "Target Date Funds" are kinda lazy (but maybe okay)
Check if your money is in a Target Date Fund (TDF). These are those funds with a year in the name, like "Freedom 2050." They are the "set it and forget it" option.
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They’re basically a flight simulator. When you’re far from retirement, the fund is aggressive. As you get closer to that date, it automatically shifts into "safe" stuff like bonds and cash. The problem? They can be expensive. Some TDFs charge 0.50% or more in management fees. Over 30 years, that can eat six figures out of your final balance.
If you’re looking for what to do with 401k right now, check the expense ratio on your TDF. If it’s high, you might be better off building your own "three-fund portfolio":
- A total US stock market fund
- An international stock fund
- A total bond market fund
It takes ten minutes to set up and could save you a fortune in the long run.
Contribution limits and the "Free Money" rule
It’s 2026. The IRS bumped the contribution limits again. For this year, you can put up to $23,500 into your 401k if you’re under 50. If you’re 50 or older, you get that "catch-up" contribution which is now $7,500. Totaling $31,000.
Most people aren't hitting that limit. That’s fine. But you absolutely have to hit the employer match.
If your boss offers a 4% match and you only put in 3%, you are literally turning down a guaranteed 100% return on that last 1%. There is no investment on earth—not Bitcoin, not Nvidia, not real estate—that gives you a guaranteed 100% return the second you deposit the money. If you aren't getting the full match, that is the very first thing you need to fix today.
Dealing with "Lifestyle Creep"
Inflation has been a beast. Groceries cost more. Gas is unpredictable. It’s tempting to lower your 401k contribution to "find" some extra cash for your monthly budget. Try to resist this.
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Because 401k contributions come out of your check before taxes, a $100 reduction in your contribution doesn't actually put $100 in your pocket. It might only put $70 or $80 in your pocket after the government takes its slice. You’re sacrificing $100 of your future for $70 of today. That’s a bad trade.
Is the 401k actually dead?
You’ll see "doom and gloom" headlines saying the 401k is a failed experiment. Critics argue that shifting the burden of retirement from the company (pensions) to the employee (401ks) was a disaster. They might be right on a societal level. But on an individual level? It’s the best tool you’ve got.
The 401k has two massive advantages:
- Automation: You don't have to remember to invest. It happens before you even see the money.
- Tax Shielding: You’re lowering your taxable income today, which is huge if you’re in a high tax bracket.
Unless you have a pension (congrats, you're a unicorn) or you're a real estate mogul, the 401k is the engine of your retirement. Don't let the "401k is dead" talk scare you into stopping.
Practical Next Steps
Stop doom-scrolling and actually log into your portal. Do these three things:
- Verify your beneficiary. Seriously. If you got divorced or your situation changed and your ex is still on there, the 401k goes to them regardless of what your will says. Fix it now.
- Look at the "Expense Ratio" column. If you see anything over 0.75%, look for a cheaper alternative in your fund list. Look for words like "Index" or "Vanguard" or "Fidelity Spartan"—those are usually the low-cost ones.
- Bump your contribution by 1%. You won't notice a 1% difference in your paycheck. I promise. But over twenty years, that 1% can result in an extra $50,000 to $100,000 depending on your income.
If you’ve already done those, check your "vesting schedule." If you’re thinking about quitting, but you become "fully vested" in three months, staying those extra 90 days could mean keeping thousands of dollars in employer-matched funds that would otherwise vanish.
Understand that the market moves in cycles. We’ve had "lost decades" before, and we’ve had massive bull runs. The people who win are the ones who don't blink when the red numbers show up on the screen. Stick to the plan.