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(warning, this post may not be construed as nice. i dont mean to personally offend, but to make a point.)

Questions such as yours amaze me. Do people really invest in 401-k's and other items without having any idea of what they are? Do you understand what the benefits are? Do you understand that they are tax deferred? Do you know that taxes are only paid upon withdrawal? If gains are not taxable transactions, why would it be a taxable transaction when the account goes down. The answer is no, just because the market goes down, 401-k taxation doesnt change. A taxable event is when you withdraw money. Anything under the umbrella of a 401-k or an IRA for that matter doesnt generate a taxable transaction.

Furthermore, if you invest pre-tax which generally is the case, even if you put in 100,000 and the account fell to 5,000, you would have no basis. If you then withdrew the 5,000 you would not only NOT have a loss, but would owe tax on the 5,000 withdrawn. You might think you lost a 95,000 tax writeoff, but remember you "wrote off" the whole 100,00 by it going in pre-tax.

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