Financially, things are tough right now. These aren’t words you thought you’d be reading eight or nine weeks ago, but it’s true. And before you go tapping into your 401(k) plan, it’s helpful to understand what’s at stake.

What the New Coronavirus Stimulus Package Means for 401(k)s

The recently enacted Coronavirus Aid, Relief, and Economic Security (CARES) Act is unprecedented in size, support, and reach. And while most people are talking about how the $2 trillion bill provides stimulus checks for millions of working Americans and forgivable loans for small businesses, there’s another element that has some buzzing.

Under the CARES Act, people no longer have to wait until they reach a certain age (59½) to start pulling our retirement funds without penalty. For a limited time, you’re actually able to withdraw as much as $100,000 in retirement assets as qualified distributions if the withdrawal is linked to COVID-19 (such as a layoff or diagnosis). Investors are also able to take up to $100,000 as a loan against their 401(k), which is an increase from the previous maximum of $50,000.

Under normal circumstances, savers face a 10 percent penalty when assets are prematurely withdrawn from a retirement plan (meaning prior to the age of 59½). This is no longer the case. This is one of those rare moments where investors can tap in and avoid getting hit with a massive fee. And though savers will still be required to pay taxes on the money they withdraw, the tax burden can be spread out over a period of three years.

Timely Tips, Strategies, and Suggestions

So, Congress is letting you access your 401(k) retirement savings on a penalty-free basis. And while that much is clear, the recommended response isn’t as straightforward. Here are some things to consider and evaluate as you think through the details of this unique situation and the circumstances it’s hatched.

1. Do What You Need to Survive (Not Thrive)

We’ve just come out of what was one of the most unprecedented stretches of growth in American history. It was a decade-long boom with massive spikes in the stock market, real-estate market, and job market. A lot of people made a lot of money. And while there’s nothing wrong with this, it could potentially create a problematic mindset for you and your family.

During a prolonged period of growth and financial success, it’s easy to become accustomed to a certain way of life. All of the things that are generally known to be luxuries become seen as necessities. And when the economic cards come tumbling down, this mindset gets exposed.

The goal right now isn’t to maintain the same lifestyle that you had six months ago. As humbling as it is, you need to shift your mindset to survival. The goal is not to thrive right now -- it’s merely to stay afloat until the conditions normalize.

As you consider tapping your 401(k), ask yourself this one simple question: Do I need this money to survive? For some, the answer will be yes. For many, the answer is no.

2. Understand Your 401(k) Plan Rules

The government has control over the big picture, but they don’t manage each one individually. Company 401(k) plans are complex and unique to each business. It’s up to you to read the fine print and talk to the people who manage your plan.

While workplace retirement plans now have the ability to allow hardship distributions, they aren’t required by law to do so. You’ll have to speak with the head of HR at your company to figure out what options are available to you.

3. Keep Cash on Hand

Let’s say you’re fine right now. You’ve been smart about managing and investing your money over the last decade and you’re well-positioned for the future. If this is the case, you may be tempted to “buy the dip” -- investor slang for purchasing stock when there’s a “fire sale.” But don’t be so quick to pour money into this down market. Many financial analysts believe we’re on the precipice of the next recession.

“If this is, in fact, the beginning of a sustained recession, then you will have plenty more opportunities to buy stocks at prices equal to or lower than those today or last week,” Tanja Hester writes for MarketWatch. “If this is simply a blip, then you’re unlikely to be able to buy enough shares right at this moment to make a meaningful difference in your future financial well-being anyway.”

This is a good time to be cash-heavy. There’s no such thing as having too much cash right now. As things eventually start to normalize and it appears that a bottom point has been reached, feel free to gradually feed your accounts. (Though you shouldn’t dip below six to nine months in cash reserves.)

4. Stop Blindly Following the Herd

Sheeple are everywhere -- especially in times of turmoil. But you have to do your best to avoid following the herd.

Whenever everyone is doing something, you need to stop and consider whether your desire to follow is rooted in herd mentality or actual facts. In other words, are you tempted to pull money out of your 401(k) simply because all of your friends and coworkers are? Or, on the flip side, are you hesitant to pull money out because everyone else in your social circle seems to be fine with staying put?

Sometimes the herd is right, but other times the sheep are walking towards a cliff of no return. Be thoughtful and discerning. Don’t follow just for the sake of enjoying communal support. 

Think Through a Long-Term Lens

When you’re living in the middle of a frustrating economic downturn where confidence is low and uncertainty is high, it’s easy to lose focus. You probably feel shaken to the core -- and that’s to be expected. But as you regain your footing, be sure to adjust your sights so that you’re looking through a long-term lens.

Yes, this is a defining moment of our lifetimes, but it won’t last forever. Almost all medical experts agree that, in six to nine months, this virus will be well behind us. This doesn’t mean life will return to precisely where it was pre-COVID-19, but a path to recovery will exist.

As hard as it can be to look this far down the road, doing so is paramount. Too much focus on the short-term might help you for two or three months, but it could also cripple you for two or three decades. Practice discipline and play the long game, regardless of what everyone else is doing.