Don't panic and withdraw unneeded funds from your 401(k)

One of the worst mistakes you can make right now is to withdraw money from your 401(k). Not only will you lock in the stock losses, but you'll pay a 10 percent penalty plus income tax on the money you take out.

Even if you are over the age of 59 1/2, when you no longer need to pay the 10 percent penalty, you still would have to pay income taxes.

You may think pulling your money out of your 401(k) will protect it from further declines. But if you are older than 59 1/2 and in the 25 percent tax bracket and withdraw funds, your cash will be reduced by another 25 percent. If you are younger than 59 1/2 and withdraw funds, you're looking at an additional 35 percent reduction.