Husband and I are on Social Security. I have a 401k of about $225K, not a lot.

With the impending recession, probably during Q2 2023, husband wants me to withdraw $$$ (e.g. $8K) from 401k and put it into a savings account on the idea that it won't be 'lost to the stock market/Wall Street' when the recession hits later this year.

However, 401k is set with 'conservative' funds and it probably earns more %-wise (~3-4% I think) than what a savings account can earn (~1% I think).

What do people here advise to think about or do with this situation??

My own feeling is to always take as little as I can out out of the 401k besides the current monthly withdrawal, which will go into the savings account too to help with expenses etc. I don't want to drain the 401k so fast I have nothing left later on...

I am also thinking about my husband being disabled and various expenses to improve his quality of life...

  • any/all withdrawals taxed 20% federal, ~6% state
    – Parkaboy
    Commented Feb 28, 2023 at 1:40
  • 4
    Why can't you put it in savings (=fixed income) fund within the 401k or roll it over into an IRA where you could do that? You'll be losing 26% on the spot if you withdraw
    – littleadv
    Commented Feb 28, 2023 at 1:41
  • 1
    Also, consider money market funds, probably closer to savings accounts
    – littleadv
    Commented Feb 28, 2023 at 1:50
  • 1
    You're asking several questions here: "do people agree that there will be a recession" (opinion, which puts it off topic), "should I pull lots of money out of the 401k now" (almost always no unless you must or are rolling it into another 401k, IRA, or equivalent tax-advantaged vehicle), and "If I expect a recession, how should I be invested".
    – keshlam
    Commented Feb 28, 2023 at 4:39
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    It's important to distinguish between money in a 401K vs. a taxable account. In either kind of account you could put the money into a cash equivalent like a money market fund that would be relatively safe during a recession. However, if you pull out of the 401K to keep it within a taxable account, you'll have to pay taxes on the distribution. Commented Feb 28, 2023 at 5:33

2 Answers 2


You are asking whether you should withdraw money from your 401k because you are concerned about economic downturn which might cause your investments to decline in value.

No. You should not.

The reason is simple. Regardless of whether your prediction of recession is correct you are not obligated to hold risky investments in your 401k.

You can sell the investments in the 401k, but leave the money in the 401k. This will usually deposit the money in a money market account, clearing account, cash account or similar "risk free" position.

Your 401k is just as secure as a savings account.

The primary reasons you should take money out of your 401k are if you are required by law to take distributions, or if you need the money for something else.

  • I realize I could have phrased the question better.
    – Parkaboy
    Commented Mar 1, 2023 at 20:29
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    The answer is correct. 401k is just a bucket for investments, you can choose to be conservative or aggressive without moving money out of it. More importantly, do not make investment decisions based on what you think the market will do. This is called market timing, and even professionals are terrible at it. No one has a crystal ball, so the best you can do is keep calm and only withdraw based on your spending needs.
    – Earth
    Commented Mar 2, 2023 at 0:02
  • And my question is not about investments, it's about whether to take money OUT of the 401k and put it into a savings account because supposedly the savings account is more "secure" than a 401k.
    – Parkaboy
    Commented Mar 2, 2023 at 0:30
  • 4
    @parkaboy your 401k is not less secure than a savings account.
    – Matthew
    Commented Mar 2, 2023 at 2:22
  • Whoever told you to suppose that is, simply, wrong. There should be a continuum of options within your 401k, just as there is in other banking and investment, from near zero risk to very risky. Returns tend to correlate with risk, though, and the time horizon until you need the money and your own comfort with risk determine what mix of account types you want for that money. Note that perfect safety often means losing value to inflation, so it's not usually considered the optimal answer for the longer term... and that a balanced mix of investments can be less risky than any one of them .
    – keshlam
    Commented Mar 3, 2023 at 15:34

Actually, if you are in the phase where you are drawing down the 401k (and/or other investments), it's worth considering keeping six months to a year's worth living expenses in cash or cash equialent. That gives you some buffer to (hopefully) let your investments ride out short-term downturns, rather than being forced to sell when the market is particularly bad.

I took that advice just in time to ride out the worst of the recent downturn by spending the cash reserve. This kept me from having to sell when prices were 30% down; now they're a lot closer to being a reasonable correction for the exceptionally high returns of the previous few years, and I'm starting to look at rebuilding that cash buffer.

So there is a legitimate argument for having some cash reserve. Whether that should be built all at once, or over time -- and whether this is the time to start setting that up -- is a judgement call based on your own concerns. Given my druthers this isn't the moment I'd take it all out; I am still hoping for further recovery.

But there may be a good way to do this without having to move it out of the 401k. I need to investigate what the closest thing to cash-eqiuvalent is in my own system.

  • Regarding "...considering keeping six months to a year's worth living expenses in cash or cash equivalent.", did you put this someplace external to the 401k?? This is what husband wants done, big question is whether to do it within 401k or outside of 401k, the latter is taxed.
    – Parkaboy
    Commented Mar 5, 2023 at 15:43
  • I didn't, and wouldn't if I was drawing it from the 401k. But I'm still drawing down my non-tax-advantaged funds. As folks have said, inside the 401k should be no more risky than outside unless you are worrying about it being remote and want it in a bank you can walk into, and moving it out means you pay the tax penalty immediately in addition to losing tax-free growth of that sum. Which may not be a disaster depending on your timeline, but.
    – keshlam
    Commented Mar 5, 2023 at 15:54

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