Are You Making These 401(k) Mistakes?

You’ve probably heard of a 401(k), you may even have one of your own. But where does that name come from? 401(k) is the section of the Internal Revenue Code that lets employers offer tax advantaged retirement benefits to help you save and invest for the future. If your employer offers a 401(k) enrolling and participating can help you invest in your future while lowering your taxes now. A recent post on the TwoCents blog talks about some mistakes employees make after enrolling in the plan. We’ve highlighted three below – click through to the article to read them all.

Mistake #1: Not taking advantage of the full match. If your employer offers a company match, make sure you’re contributing enough to receive the full amount. If you can’t quite afford that yet, work up to it as soon as you can. An employer match is free money put towards your future – take advantage of it if it is offered.

Mistake #2: Not investing it. Making contributions is only the first step – you have to choose where to invest them as well. One of the primary advantages of a 401(k) is that your returns grow tax-deferred. That means investments in a 401(k) will be worth significantly more than identical investments in a regular brokerage account after 10 or 20 years. Review your company’s investment options carefully, but remember that this is an investment account.

Mistake #3: Forgetting about your accounts. Changing jobs can mean losing track of prior 401(k) accounts. Leaving them at a prior employer is fine as long as you continue to meet the plan requirements to stay in that plan and are comfortable with the investment options and fees. Rolling them over to a new employer plan or to an IRA are also options, but do your research to know the best option and to make sure you move the funds tax-efficiently. Mainly, just don’t forget about them! You’ll need that money in retirement!

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