Common Mistakes People Make With Their 401(k) Plans

Tuesday, 19 March 2024, 12:30

Discover how overlooking details in your 401(k) plan can lead to potential losses and missed opportunities. Learn about the top mistakes investors make with their retirement accounts and how you can avoid them to secure a better financial future.
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Common Mistakes People Make With Their 401(k) Plans

5 Common Mistakes People Make With Their 401(k) Plan

Many people overlook details of their 401(k) plans. Read on to find out how this can result in lost money and opportunity cost.

  1. Not knowing how much you're paying in fees

    Your fees will include the expense ratio (the fee the fund charges) and any applicable administrative costs the plan administrator charges. Most 401(k) plans charge between 0.5% to 2%, with the average being 1%. A 1% fee would mean you pay $10 in fees for every $1,000 in your portfolio.

    Key Tip: Look for a fund with a low expense ratio to reduce costs.

  2. Not taking advantage of employer match programs

    Many employers offer a 401(k) matching program that essentially gives you free money. Taking advantage of this benefit can significantly boost your retirement savings over time.

    Important: Employer match programs can double your contributions.

  3. Leaving your job before your account has vested

    Understanding the vesting period is crucial as leaving before it can lead to losing the employer's contributions. Always review the vesting schedule before changing jobs to make informed decisions.

    Tip: Stay longer at a job to retain matching contributions.

  4. Not increasing your contribution amount over time

    Regularly updating your contribution level to match your income growth is essential for building a sufficient retirement fund. Aim to save and invest at least 15% of your pre-tax earnings.

    Reminder: Consider raising your contributions when you get a pay raise.

  5. Leaving your 401(k) at your old job

    Deciding what to do with your 401(k) when changing jobs can impact your long-term financial goals. Compare the options available and choose the one that best suits your investment strategy.

    Note: Consider rolling over your 401(k) to an IRA for more control over your investments.


This article was prepared using information from open sources in accordance with the principles of Ethical Policy. The editorial team is not responsible for absolute accuracy, as it relies on data from the sources referenced.


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