401k Mistakes to Avoid
The 401k is an incredible investment vehicle to help you build your retirement funds over time, however, most people don’t take full advantage of all of the benefits their 401k has to offer. In this article, we’ll go over the four most common 401k mistakes that you should avoid!
Missing Out On Your 401(k) Employer Match
As you may or may not know, most employers will match a certain percentage of your own contributions to your 401k plan (This number is usually in the 2-6% range). For example, if you contribute 3% of a $50,000 salary, you are contributing $1,500 per year. With a 3% match, your investment doubles to $3,000 per year. These savings add up and with the magic of compound interest, you could end up with a nice nest egg. Unfortunately, there are a lot of people out there who don’t contribute anything to their 401k, which means they’re effectively leaving free money on the table! Make sure that you are maxing out your 401k contributions to maximize your savings.
Lack of Diversification
When it comes to successful long-term investing, diversification is key. At the end of the day, your retirement investments should reflect your risk tolerance, while diversifying your funds that fit the amount of risk you are willing to take. You also don’t want to put all of your eggs in one basket, which is why it’s important to speak with a financial advisor to come up with a plan for long-term growth and success in your retirement accounts.
Failing to Maximize Tax Breaks
While many people do take advantage of their employer’s match in their 401k, there are plenty of people who aren’t utilizing their 401k to its fullest potential. As of 2022, you can contribute up to $20,500 in pretax money to your 401k plan. Contributing the full amount will lower your taxable income considerably and save money on the taxes you owe.
Not Rolling Over Your 401(k) When You Change Employers
Many investors don’t realize that when you leave a job, you can take your 401k funds with you. By leaving a fully vested 401k account with your old employer, you lose valuable control of how those funds are invested. Rolling your 401k into an Individual Retirement Account (IRA) provides more investment options which helps you grow your retirement funds over time. A rollover also protects your investment from taxes and early withdrawal fees, which a certified investment professional can help facilitate.
SafeHarbor Can Help
If you are looking for financial advice on existing or new investment options, Safe Harbor Retirement group can provide guidance. We can help you with a 401k rollover, setup a Roth account to provide additional investment options and review your existing retirement strategy. Schedule a complimentary consultation with us at one of our two Central Ohio offices or call us at 614-760-0670 to get started.