Is losing money in my 401K normal?
Depends on how the money is invested within the 401k... but in general, prices move both up and down with a long-tem bias toward up.  Think of it this way: with fund shares priced lower now, you are getting shares cheaper than when you entered the plan. So this dip is actually working in your favor, as long as you are comfortable trusting that long-term view (and trusting the funds your 401k money is going into). Believe me, it's even scarier when you're nearer your target retirement date and a 10% dip may be six figures... but it's all theoretical until you actually start drawing the money back out, and you have to learn to accept some volatility as part of the trade-off  for getting returns better than bonds. "It is absolutely normal for your investments to go down at times. If you pull money out whenever your investments decrease in value, you lock in the losses.  It is better to do a bit of research and come up with some sort of strategy about how you will manage your investments.  One such strategy is to choose a target asset allocation (or let the ""target date"" fund choose it for you) and never sell until you need the money for retirement.  Some would advocate various other strategies that involve timing the market.  The important thing is that you find a strategy that you can live with and that provides you with enough confidence that you won't buy and sell at random.  Acting on gut feelings and selling whenever you feel queasy will likely lead to worse outcomes in the long run." "My two cents: I am a pension actuary and see the performance of funds on a daily basis. Is it normal to see down years? Yes, absolutely. It's a function of the directional bias of how the portfolio is invested. In the case of a 401(k) that almost always mean a positive directional bias (being long). Now, in your case I see two issues: The amount of drawdown over one year. It is atypical to have a 14% loss in a little over a year. Given the market conditions, this means that you nearly experienced the entire drawdown of the SP500 (which your portfolio is highly correlated to) and you have no protection from the downside. The use of so-called ""target-date funds"". Their very implication makes no sense. Essentially, they try to generate a particular return over the elapsed time until retirement. The issue is that the market is by all statistical accounts random with positive drift (it can be expected to move up in the long term). This positive drift is due to the fact that people should be paid to take on risk. So if you need the money 20 years from now, what's the big deal? Well, the issue is that no one, and I repeat, no one, knows when the market will experience long down moves. So you happily experience positive drift for 20 years and your money grows to a decent size. Then, right before you retire, the market shaves 20%+ of your investments. Will you recoup these damages? Most likely yes. But will that be in the timeframe you need? The market doesn't care if you need money or not. So, here is my advice if you are comfortable taking control of your money. See if you can roll your money into an IRA (some 401(k) plans will permit this) or, if you contribute less that the 401(k) contribution limit you make want to just contribute to an IRA (be mindful of the annual limits). In this case, you can set up a self-directed account. Here you will have the flexibility to diversify and take action as necessary. And by diversify, I don't mean that ""buy lots of different stuff"" garbage, I mean focus on uncorrelated assets. You can get by on a handful of ETFs (SPY, TLT, QQQ, ect.). These all have liquid options available. Once you build a base, you can lower basis by writing covered calls against these positions. This is allowed in almost all IRA accounts. In my opinion, and I see this far too often, your potential and drive to take control of your assets is far superior than the so called ""professionals or advisors"". They will 99% of the time stick you in a target date fund and hope that they make their basis points on your money and retire before you do. Not saying everyone is unethical, but its hard to care about your money more than you will." While historical performance is not necessarily indicative of future performance, I like to look at the historical performance of the markets for context. Vanguard's portfolio allocation models is one source for this data. Twenty years is a long term timeline. If you're well diversified in passively managed index funds, you should be positioned well for the future.  You've lost nothing until it's realized or you sell. Meanwhile, you still own an asset that has value. As Warren Buffet says, buy low and sell high. Bottom line is our system is broken.  For three years running I am 0% return with over 600k in.  Yet, the 401k admin institution charges us all enormous fees that most aren't even aware exist.  A helpful tip is to also check out your expense ratios and learn how those work as well so you know how much you are paying in hidden fees.
If it was me, I would withdraw money from savings and be debt free today.  I would then pour the $500 into building back your savings.  Then of course, never again carry a balance on your CC. At your age MSFRX is a losing game.  You can handle the volatility of better performing funds, I would have zero in there.   If it was me, I would do something totally different then you are doing: Keep in mind you are doing very good as is.  The best way to win with money is to make good moves overtime, and given your debt level, savings, and willingness to contribute to a 401K your moves are pretty darn good.   Keep in mind you will probably want to start saving a down payment for a house.  This should be done outside of your 401K. Overall good work! Take some of the commentary on home buying forums with a grain of salt. I too have read some of the commentary on these forums such as myFICO, Trulia, or Zillow and rarely is the right advice given or proper followup done. Typical 401k withdrawals for home purchase would not be considered a hardship. However, most employer 401k plans will allow you to take a loan for 401k as long as you provide suitable documentation: HUD-1 statement, Real Estate Contract, Good Faith Estimate, or some other form of suitable documentation as described by the plan administrator.  For instance, I just took a 401k loan to pay for closing costs and I had to provide only the real estate contract. Could I not follow through with the contract? Sure, but what if I am found out for fraud? Then the plan administrator would probably end up turning the distribution into a taxable distribution. I wouldn't go to jail in this hypothetical situation - I am only stealing from myself. But the law states that certain loan situations are not liable for tax as long as that situation still exists. In the home loan situation, my employer allows for a low interest, 10 year loan. My employer also allows for a pre-approved loan for any purpose. This would be a low interest, 5 year loan.  There is also the option to not do a loan at all. But normally that is only allowed after you have exhausted all your loan options and the government makes it intentionally harsh (30% penalty at least) to discourage people from dumping their tax free haven 401k accounts. That all being said, many plans offer no prepayment penalty. So like my employer has for us, I can pay it all back in full whenever I want or make micropayments every month. Otherwise, it comes out of my pay stub biweekly. So if it were to fall through, I could just put it all back like it never happened. Though with my plan, there is a cooling off period of 7 days before I can take another loan. Keep in mind that if you leave your employer then the full amount becomes a taxable distribution unless you pay it back within a certain period of time after leaving the employer.  Whether this fits your financial situation is up to you, but a loan is definitely preferred over a partial or full withdrawal since you are paying yourself back for your rightly earned retirement which is just as important. First, to answer the question.  The benefit of a 401k is that you don't have to pay income tax on the money contributed nor do you pay capital gains tax on the money that accumulates.  You get that with the restriction that you can't willy nilly remove and contribute money to the account (and you are taxed on withdrawals, more severely if you do it before you are 65).  Similar sorts of restrictions apply to all retirement accounts which give tax benefits.  Now, for the 7000 not providing benefit.  Assuming a very modest 4% growth, over 40 years 7000 becomes 34,671. Not something to sneeze at (inflation, risk reward, blah, blah, blah, it is less than it looks, but 4% is really pretty low, the stock market averages anywhere from 7-&gt;10% and IIRC the bond market is somewhere around 5%).  Now, certainly, to avoid bankruptcy you should withdraw.  However, if it is possible, you will be best served by keeping the money in your 401k account.  The penalties and lost earning opportunities are pretty significant.  /u/BeatArmy99 [has the numbers](http://www.reddit.com/r/finance/comments/2ct0qy/why_cant_i_access_my_401k_if_its_my_money/cjiorl7) for how much you lose by doing an early withdraw.  Don't do this lightly and I would suggest avoiding cashing out the whole thing if you can. Some have suggested you can put the money in the 401k then take a loan to pay off the student loan debt.  Some things to consider before doing that: Check your 401k plan first.  Some plans allow you to continue paying on a loan if you leave the company, some do not.  If you have to change jobs before you pay back the 401k loan, you may only have 90 days to completely pay the loan or the IRS will treat this as an early withdrawal, which means taxes and penalties.  If you don't have another job lined up, this is going to make things much worse since you will have lost your income and may owe even more to the government (depending on your state, it may be up to 50% of the remaining amount).  There are ways to work with some student debt loans to defer or adjust payments.  There is no such option with a 401k plan. This may change your taxes at the end of the year.  Most people can deduct student loan interest payments.  You cannot deduct interest paid to your 401k loan.  You are paying the interest to yourself though.   It may hurt your long term growth potential.  Currently loans on 401k loans are in the 4% range.  If you are able to make more than 4% inside of your 401k, you will be losing out on that growth since that money will only be earning the interest you pay back. It may limit flexibility for a few years.  When people fall on hard times, their 401k is their last resort.  Some plans have a limit on the number of loans you can have at one time.  You may need a loan or a withdrawal in the future.  Once you take the money out for a loan, you can't access it again.  See the first bullet about working with student loan vendors, they typically have ways to work with you under hard circumstances.  401k loans don't. Amortization schedule.  Many 401k loans can only be amortized for a max of 5 years, if you currently have 10 year loans, can you afford to pay the same debt back in 1/2 the time at a lower rate?  You will have to do the math. When considering debt other than student loans (such as credit cards), if you fall on hard times, you can always negotiate to reduce the amount you owe, or the debt can be discharged (with tax penalties of course).  They can't make you take money out.  Once it is out, it is fair game. Just to clarify, the above isn't saying you shouldn't do it under any circumstances, it is a few things you need to evaluate before making that choice.  The 401k is supposed to be used to help secure your financial future when you can't work.  The numbers may work out in the short term, but do they still work out in the long term?  Most credit cards require minimum payments high enough to pay back in 7-10 years, so does shortening that to 5 (or less) make up for the (probably early) years of compounding interest for your retirement?  I think others have addressed some of this so I won't do the math. I can tell you that I have a 401k loan, and when things got iffy at my job for, it was a very bad feeling to have that over my head because, unlike other debts, there isn't much you can do about it. According to my calculations, you always lose money on group B.  x = average monthly balance  Income for a year = 0.015 * (12 * x) = 0.18 * x  Cost of funds for one month = 0.04 * x  Cost of funds for one year = 12 * (0.04 * x) = 0.48 * x  Profit? at end of year   = income_for_year - cost_of_funds_for_one_year  = (0.18 * x) - (0.48 * x)  = forever loss You may want to move money between your investments within the plan, rebalancing money to maintain your diversification. You don't have to deal with the details if selling and buying, just tell them how much to move where. Many plans offer investments that automatically rebalance for you such as Target Date accounts. You may be able to select one of those and just ignore the 401k until retirement, or at most rebalance even less often. Look at what's offered, look at what it costs as fees, run the numbers and decide whether you can do better. Try to avoid actually pulling money out of your retirement savings. Not only are you paying that stiff penalty today, but you're actually stealing form your future. Many 457 plans allow you to borrow against the balance, usually up to 50% of the plan balance. I'd roll the 401k into the 457 and borrow against it if you really need the money. Borrow a little extra to help you make the first few payments if you need to. $10.90 for every $1000 per year. Are you kidding me!!! These are usually hidden within the expense ratio of the plan funds, but >1% seems to be quite a lot regardless. FUND X 1 year return 3% 3 year return 6% 10 year return 5% What does   that exactly mean? This is the average annual rate of return. If measured for the last 3 years, the average annual rate of return is 6%, if measured for 1 year - it's 3%. What it means is that out of the last 3 years, the last year return was not the best, the previous two were much better. Does that mean that if I hold my mutual funds for 10 years I will get   5% return on it. Definitely not. Past performance doesn't promise anything for the future. It is merely a guidance for you, a comparison measure between the funds. You can assume that if in the past the fund performed certain way, then given the same conditions in the future, it will perform the same again. But it is in no way a promise or a guarantee of anything. Since my 401K plan stinks what are my options. If I put my money in a   traditional IRA then I lose my pre tax benefits right! Wrong, IRA is pre-tax as well. But the pre-tax deduction limits for IRA are much lower than for 401k.  You can consider investing in the 401k, and then rolling over to a IRA which will allow better investment options. After your update: Just clearing up the question. My current employer has a 401K. Most of   the funds have the expense ratio of 1.20%. There is NO MATCHING   CONTRIBUTIONS. Ouch. Should I convert the 401K of my old company to Traditional IRA and   start investing in that instead of investing in the new employer 401K   plan with high fees. You should probably consider rolling over the old company 401k to a traditional IRA. However, it is unrelated to the current employer's 401k. If you're contributing up to the max to the Roth IRA, you can't add any additional contributions to traditional IRA on top of that - the $5000 limit is for both, and the AGI limitations for Roth are higher, so you're likely not able to contribute anything at all to the traditional IRA. You can contribute to the employer's 401k. You have to consider if the rather high expenses are worth the tax deferral for you.