When the COVID-19 pandemic sent U.S. stock markets plunging, one of the biggest worries on Americans' minds was how the crash would affect their retirement savings. Well, Fidelity just released a new report that sheds some light on just how badly our 401(k)s and IRA have been affected. 

The average 401(k) balance fell to $91,400 at the end of March, down from $112,300 at the end of 2019. When it comes to IRAs, the average fell from $115,400 to $98,900. This means that the average 401(k) and IRA was down 19% and 14%, respectively, by the end of the first quarter.

Account Type

4Q 2019 Average Balance

1Q 2020 Average Balance

Average Loss




$20,900 (19%)




$16,500 (14%)

Data source: Fidelity.

There are a couple of important points to keep in mind. First, the Dow Jones Industrial Average and the S&P 500 were down by 23% and 20%, respectively, in the first quarter, so the average retirement saver outperformed the market. The reason likely has to do with the fact that most retirement accounts have some exposure to bonds in addition to stock-based funds, and bonds didn't perform nearly as poorly as stocks. In fact, the Vanguard Total Bond Market ETF (NASDAQ:BND), a good indicator, was actually up by roughly 2% in the quarter.

Group of people of various ages.

Image source: Getty Images.

Second, it's important to note that the stock market has rebounded significantly since the end of the first quarter. While we're not quite back to where we started the year, the S&P 500 and the Dow are higher by 10% and 8%, respectively, for the second quarter as of April 27. So, it's reasonable to infer that the average retirement accounts have rebounded as well.

Are 401(k) plans using the new withdrawal and loan rules?

In addition to retirement balances themselves, one other important development is the changes plans have made to help people access their money more freely during the pandemic.

The CARES Act included provisions to make it easier for Americans to tap into their retirement plans early, such as doubling the 401(k) loan limit, suspending payments on current 401(k) loans, and allowing penalty-free withdrawals for COVID-19 reasons. However, what many people don't realize is that it's still up to each individual plan to implement the provisions if they choose to do so.

Here's a rundown of the specific provisions that the CARES Act allowed plans to do (if they want):

  • 401(k) loans can be made up to $100,000 or 100% of the vested account balance, whichever is less. This is up from $50,000 or half of the account balance.
  • Participants can extend repayment on existing 401(k) loans for an extra year, with no more payments due in 2020.
  • Up to $100,000 can be withdrawn early from a retirement account without the usual 10% penalty, and tax liability can be spread out for the next three years. This applied to individuals who have been impacted (financially or health-wise) from the COVID-19 pandemic.
  • Participants who choose to withdraw funds in this manner can choose to repay them back for as long as three years after the distribution, and it will be treated as a rollover (which typically has a 60-day limit).

According to a recent survey by Plan Sponsor Council of America, most 401(k) plans have incorporated at least one of these changes or are considering doing so. But the key takeaway is that it's not an automatic change, so check with your plan sponsor if you're considering taking advantage of one of these provisions.

Should you keep contributing and investing during the pandemic?

One of the most common mistakes people tend to make during tough times is changing their retirement investment strategy. Many are tempted to stop making contributions until the dust settles and market volatility subsides. Others may take the more drastic step of moving their retirement investments out of stock-based funds entirely.

Both are generally bad ideas. To be clear, if you're experiencing a financial hardship and stopping contributions to your IRA for the time being will help, there's nothing wrong with making sure your near-term needs are met. On the other hand, if you can afford to do so, it's smart to keep contributing and keep your money invested -- especially if you're years away from retiring. Retirement accounts are meant to be long-term investments, and stocks remain the best way to create long-term wealth in these accounts.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.