Dr. Ronald Premuroso, Western Governors University School of Business With stock market charts resembling the contours of a roller-coaster ride in recent days, many Americans could be forgiven for eyeing their 401(k)s with a little concern. Retirement savings are crucial to the financial well-being of millions of especially older people in the U.S., so the concern is understandable. But just how worried should people be by market fluctuations? And just how big a hit do 401(k)s take when markets fall? The Conversation turned to Western Governors University’s Ronald Premuroso, an expert in this area, for answers.

What is a 401(k)?

Simply put, a 401(k) is an employer-sponsored retirement savings plan in which employees contribute a portion of their compensation on a tax-deferred basis. The employee is eligible at any age to contribute to a 401(k) plan and has the option to pay into these plans throughout their employment. Many employers match some or all of an employee’s contributions, making the plan even more attractive.

What about withdrawals?

Under Internal Revenue Service rules, someone with a 401(k) is required to start making monetary withdrawals from their plan when they reach age 73. Some people start withdrawing at an earlier age. Someone with a 401(k) can withdraw funds from the plan early, and at any time. But the money amounts withdrawn will typically be deemed taxable income. In addition, those age 59 and a half and under will likely face a 10% penalty on the withdrawal, unless the employer’s plan allows for hardship distributions, early withdrawals or loans from your plan account. The IRS has specific rules for these early withdrawals; if you find yourself in this situation, you should get help from a tax professional. All withdrawals starting at age 73, which tax professionals call “RMDs,” are then taxable in retirement – presumably at a lower tax rate than the employee was subject to while employed and working. So these withdrawals starting at age 73 can be a very tax-efficient way of financial planning, including personal income tax planning, for later in life, especially in one’s retirement years. Again, it’s important to get help from a tax professional to make sure you meet the IRS’ RMD dollar withdrawal requirements once you start withdrawing. In calendar-year 2025, the most that an employee can contribute to a tax-deferred 401(k) plan annually is US$23,500, including the employer’s match. “Super catch-up contributions are allowed for employees over the age of 50 to their employer’s 401(k) plan each year indexed to inflation. In 2025, super catch-up contributions allow individuals age 50 and older to contribute an additional $7,500 beyond the standard limit, bringing their total annual contribution to $31,000. For those turning age 60, 61, 62 or 63 in 2025, the SECURE Act 2.0 allows a higher catch-up contribution limit of $11,250, resulting in a total allowable contribution of $34,750 in 2025.

When and why did 401(k)s become popular?

Before 1978, retirement savings options were limited. In 1935, Congress created the Social Security Retirement Plan. This was followed by the Employee Retirement Income Security Act of 1974, which created individual retirement accounts, or IRAs, as a way for employees to save tax-deferred money for their retirement. 401(k) plans became popular with the passage of the Revenue Act of 1978 by Congress. Congress saw 401(k) plans at that time as an alternative way to supplement Social Security benefits that all eligible Americans are entitled to receive upon retirement. In 1981, the IRS issued new rules and regulations allowing employees to fund their 401(k)s through payroll deductions. This significantly increased the number of employees contributing to their employers’ 401(k) plans. As of September 2024, Americans held $8.9 trillion in 401(k) plans, according to the Investment Company Institute. A study published by the Pension Rights Center toward the end of 2023 using data provided by the Bureau of Labor Statistics concluded that 56% of all workers – including private sector and state and local government workers – participate in a workplace retirement plan. That equates to 145 million full- and part-time workers.

How are 401(k) plans affected by market rises and falls?

Contributions to a 401(k) are typically invested in a variety of financial instruments, including in the stock market. Most 401(k) plans offer investment options with varying levels of risk, allowing employees to choose based on their personal comfort levels and financial goals. Employers typically outsource the management of these 401(k) plans to third parties. Some of the largest companies managing 401(k) funds on behalf of employers and employees include Fidelity Investments, T. Rowe Price and Charles Schwab, to name just a few. Because many of these investments are tied to the stock market, 401(k) balances can rise or fall with market fluctuations.

Should I be worried about the stock market tanking my 401(k)?

It depends on when you started making contributions, when you plan to retire and when you expect to start making withdrawals. Employees with 401(k) accounts should only be worried about falling stocks if they need the money right now – either for retirement living expenses or for other emergency reasons. If you don’t need to take money out soon, there’s usually no reason to panic. History has shown that markets can rebound quickly; short-term drops often don’t signal long-term trends. Over time, the stock market has experienced many periods of falling stock prices: the bursting of the internet bubble of 2000; the period after the events of 9/11; and the U.S. and global banking crisis of 2007-2010, to name but three. But overall, over time, stock market returns have averaged 9% from 1994 to 2024, and this includes the periods of falling stock prices mentioned above. So even if you are a baby boomer heading for retirement and your 401(k) has taken a hit in recent weeks, don’t panic. Bear in mind the truism that stock markets can always go down as well as up. History suggests that in the long run, depending upon your plans and timing for retirement, working together with a trusted financial adviser strategically with regard to your 401(k) retirement savings is a good approach, especially during periods like we have seen in recent weeks in the stock market. This article is for informational purposes and does not constitute financial advice. Consult with a qualified financial adviser before making financial decisions. Dr. Ronald Premuroso, Accounting Instructor, Western Governors University School of Business This article is republished from The Conversation under a Creative Commons license. Read the original article.

David Garofalo, Kennesaw State University One of the most powerful objects in the universe is a radio quasar – a spinning black hole spraying out highly energetic particles. Come too close to one, and you’d get sucked in by its gravitational pull, or burn up from the intense heat surrounding it. But ironically, studying black holes and their jets can give researchers insight into where potentially habitable worlds might be in the universe. As an astrophysicist, I’ve spent two decades modeling how black holes spin, how that creates jets, and how they affect the environment of space around them.

What are black holes?

Black holes are massive, astrophysical objects that use gravity to pull surrounding objects into them. Active black holes have a pancake-shaped structure around them called an accretion disk, which contains hot, electrically charged gas. The plasma that makes up the accretion disk comes from farther out in the galaxy. When two galaxies collide and merge, gas is funneled into the central region of that merger. Some of that gas ends up getting close to the newly merged black hole and forms the accretion disk. There is one supermassive black hole at the heart of every massive galaxy. Black holes and their disks can rotate, and when they do, they drag space and time with them – a concept that’s mind-boggling and very hard to grasp conceptually. But black holes are important to study because they produce enormous amounts of energy that can influence galaxies. How energetic a black hole is depends on different factors, such as the mass of the black hole, whether it rotates rapidly, and whether lots of material falls onto it. Mergers fuel the most energetic black holes, but not all black holes are fed by gas from a merger. In spiral galaxies, for example, less gas tends to fall into the center, and the central black hole tends to have less energy. One of the ways they generate energy is through what scientists call “jets” of highly energetic particles. A black hole can pull in magnetic fields and energetic particles surrounding it, and then as the black hole rotates, the magnetic fields twist into a jet that sprays out highly energetic particles. Magnetic fields twist around the black hole as it rotates to store energy – kind of like when you pull and twist a rubber band. When you release the rubber band, it snaps forward. Similarly, the magnetic fields release their energy by producing these jets.

These jets can speed up or suppress the formation of stars in a galaxy, depending on how the energy is released into the black hole’s host galaxy.

Rotating black holes

Some black holes, however, rotate in a different direction than the accretion disk around them. This phenomenon is called counterrotation, and some studies my colleagues and I have conducted suggest that it’s a key feature governing the behavior of one of the most powerful kinds of objects in the universe: the radio quasar. Radio quasars are the subclass of black holes that produce the most powerful energy and jets. You can imagine the black hole as a rotating sphere, and the accretion disk as a disk with a hole in the center. The black hole sits in that center hole and rotates one way, while the accretion disk rotates the other way. This counterrotation forces the black hole to spin down and eventually up again in the other direction, called corotation. Imagine a basketball that spins one way, but you keep tapping it to rotate in the other. The tapping will spin the basketball down. If you continue to tap in the opposite direction, it will eventually spin up and rotate in the other direction. The accretion disk does the same thing. Since the jets tap into the black hole’s rotational energy, they are powerful only when the black hole is spinning rapidly. The change from counterrotation to corotation takes at least 100 million years. Many initially counterrotating black holes take billions of years to become rapidly spinning corotating black holes. So, these black holes would produce powerful jets both early and later in their lifetimes, with an interlude in the middle where the jets are either weak or nonexistent. When the black hole spins in counterrotation with respect to its accretion disk, that motion produces strong jets that push molecules in the surrounding gas close together, which leads to the formation of stars. But later, in corotation, the jet tilts. This tilt makes it so that the jet impinges directly on the gas, heating it up and inhibiting star formation. In addition to that, the jet also sprays X-rays across the galaxy. Cosmic X-rays are bad for life because they can harm organic tissue. For life to thrive, it most likely needs a planet with a habitable ecosystem, and clouds of hot gas saturated with X-rays don’t contain such planets. So, astronomers can instead look for galaxies without a tilted jet coming from its black hole. This idea is key to understanding where intelligence could potentially have emerged and matured in the universe.

Black holes as a guide

By early 2022, I had built a black hole model to use as a guide. It could point out environments with the right kind of black holes to produce the greatest number of planets without spraying them with X-rays. Life in such environments could emerge to its full potential.

Where are such conditions present? The answer is low-density environments where galaxies had merged about 11 billion years ago. These environments had black holes whose powerful jets enhanced the rate of star formation, but they never experienced a bout of tilted jets in corotation. In short, my model suggested that theoretically, the most advanced extraterrestrial civilization would have likely emerged on the cosmic scene far away and billions of years ago. David Garofalo, Professor of Physics, Kennesaw State University This article is republished from The Conversation under a Creative Commons license. Read the original article.