Common 401K Mistakes


401k MistakesWhen making an investment, it is only normal to desire for higher earnings when the time calls for making your retirement more comfortable than what you have ever dreamed of. Many have taken a positive outlook at their 401k plans that gave them the best benefit for their savings, but millions are still blundering their way across, committing many 401k mistakes, and suffering huge losses that could have been avoided.

It is not only the workers who commit these 401k mistakes when it comes to choosing the right plan that suits them most, but employers also can make errors in processing the allocation of your hard-earned cash. Here’s a list of 401k mistakes that you can commit, which can be avoided and turned into a win-win situation that can be truly beneficial for you:

Five Common 401K Mistakes By Workers or Employees

1. Ignorance

Lack of understanding, or knowledge of what a 401K allocation can do for you greatly sabotages your chances of taking advantage of this plan which could have made your dream retirement come true. Don’t let good opportunities pass you by, specially when it deals with having a security for the near future. A bad 401K plan is surely better than no plan at all. Check the web for updates and make sure you talk to an expert to help you avoid making 401K mistakes.

2. Procrastination

Not wanting to sign up to a 401K plan is another big mistake you can avoid. Many are eligible to sign up for the program, but are misled with the idea that having a 401K is a huge risk to take. In fact, it is better to start young at your 20′s, so you can have a lot to reap when your retirement comes. There might be many bills to pay and many other more important things where you can use your income, but always have in mind that you’ll not be working forever. When that time comes, you’ll need your savings to keep you living your life decently.

3. Lack of Diversity

To get more from your 401k plan, you need to distribute your investments in a mixture of stocks, bonds, and cash. You can invest a higher percentage on the investment that will give you higher yields or returns. Don’t risk too little, but don’t risk a lot. Always check the history of the company where your stocks will be invested. It may all be a time-consuming task, but in the end, figures always matter.

4. Neglect

Sometimes, you switch from being employed to being self-employed. It is important that you still take care of making your 401K contributions. Another 401K mistake one can make is that if you have switched jobs, you cannot leave your plan to your old company. You must take action to have your 401K rolled over to your new job. If you have forgotten to do this, you may be subject to tax at the normal rate, which is the least you want to have when enjoying your investment. You may also open an IRA if your new company doesn’t have a 401K allocation or plan.

5. Making Unnecessary Loans

What’s the rush? You might find yourself wanting to spend for that dream vacation now and you want to feel the rewards of your hard work. Don’t just give in to your impulsive decision. It is always tempting to borrow from your 401K fund and pay yourself, with interest, but unless it is of extreme necessity – Don’t touch that money! You may not know when you will lose a job and need a backup to keep you on the right track. Besides, getting a loan before 60 would mean paying more taxes than you enjoying the investment you have made. The next time you can’t resist to get a loan, think of one word: PENALTY.

Making 401K mistakes can give you great losses that are costly. There is a reason why 401K contributions are made for your retirement. You may never know the cost of living when that time comes and if you will have enough savings to support your future living. It is wise to use your 401K fund where it is originally intended. Imagine what you will be doing by the time you reach 65 years. This investment is money out of your very sweat, so treat it with care and respect.

RESOURCES:

http://articles.moneycentral.msn.com/RetirementandWills/InvestForRetirement/7MostCommon401kBlunders.aspx

http://www.obliviousinvestor.com/2009/03/401k-mistake-not-accepting-free-money/

http://ezinearticles.com/?Top-Five-Common-Mistakes-401k-Investors-Make&id=2344367

http://www.wealthbuilding.co.cc/common-401k-mistakes/

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