Stop Making These 401 (K) Mistakes
If you’ve made a commitment to contribute to your 401 (k) – great! When it comes to a healthy retirement, you are ahead of the pack.
But setting up automatic contributions is the easiest part. As Mitch Touchman writes at MarketWatch , there are many ways you can harm your retirement savings, and you should avoid them. Some are obvious (fees!) And others are less obvious:
Do not invest
So you started making contributions. Great! Now you need to choose your investments, otherwise your money will be just cash. There are many options, but inexpensive index funds are your best bet.
Lack of complete information about the employer
Many companies offer incentive programs for you to fund your retirement account. If you don’t contribute up to that amount, say six percent of your salary, you are allowing your employer to pay you less for your work.
Pre-loaded contributions
If you can top up your 401 (k) at $ 18,500, or $ 24,500 if you are 50 or older, it is suggested that you do this as early as possible to maximize your winnings. But that means you might be missing out on employer contributions because some companies spread out payments throughout the year.
This is not a problem for every employer. According to FINRA :
Some 401 (k) plans include a feature that allows workers to be as close as possible to employer requirements, even if they finished contributing to their 401 (k) plans at the beginning of the year. A feature called true up allows employees to get employer matches that they would otherwise miss due to 401 (k) preloading or because they spread their 401 (k) contributions unevenly throughout the year.
As FINRA notes, if you plan to leave the company before the end of the year, it might make sense to preload whether you miss a full match or not.
Pay high commissions
You knew we were getting here. We’ve covered a lot about this , but check your fees. Even seemingly insignificant amounts can lead to huge differences in the size of your nest egg over time.
Forget about your accounts
We have considered this as well . You may want a set-and-forget portfolio, but you don’t want to lose your real account. Keep track of your retirement accounts to avoid becoming one of the 25 million people who are missing hundreds of billions of dollars in retirement benefits.
Learn more about how to track .
And if you don’t have access to 401 (k) – and many employees don’t – or don’t like your plan options, consider an IRA or Roth . Many of the same rules apply.