Which Common Mistakes To Avoid With Your 401k Plan

Your financial future depends upon making solid decisions when it comes to your savings and your retirement strategies. However, most folks tend to make some common errors in this regard.

These mistakes are easily overlooked but can cost you a great deal in terms of loss of investment growth and or a loss of time.

One of the obvious areas mistakes are made has to do with how you use your 401k retirement plan. Your IRA/401K can be a very powerful vehicle to supercharging your retirement savings but only if used correctly.

So let’s take a look at some mistakes to avoid while taking advantage of your 401k plan.

The first mistake most people make with a 401k plan is simply not signing up for one. Ok, so I know this sounds stupid, but I’m being serious here.

Almost everyone working in corporate America has access to some sort of IRA or 401k savings account. However, a lot more folks than you would think simply never get around to signing up for these savings vehicles.

Often I think this is due to simply not understanding how a 401k plan works. Or there is the fear of what will happen to my money if the markets change or the investment vehicles utilized by the funds go south. But sometimes, the reasons are simply that they feel they simply can’t spare the money now because those funds are needed for their day-to-day survival at home.

While all those reasons might be valid, you need to look at the potential benefits as far outweighing the possible negatives. Retirement always seems so far off, and you might be thinking, well, I have time to come up with a plan, but this would be a mistake.

It’s simply smarter proof to invest in your company’s 401K plan now, even if it’s not the most comfortable thing for you at this time. Why pass up on the company matching you get from investing in your company’s 401k plan?

This is basically getting free money from your company, so take advantage of it while you can, also when you want to use of for real estate purposes. Why not start building that small nest egg while you can by using your company to buffer your investments?

The next mistake I think that most people commit when investing in a 401k plan is simply being too timid in taking risks in the portfolio. Look, you don’t need to be reckless, but you will need to take some risks in order to maximize the growth of your IRA or 401k account.

This is especially true if you start investing at a much later date. Understanding how the markets work over longer periods of time is critical here because your 401k account will take hits along the way. However, always remember that you have time on your hand, and thus you should be open to taking more calculated risks for greater rewards down the road.

On the other hand, the opposite of the risk above is simply taking far too many risks and investing in the wrong vehicles. Financial literacy is so important, and portfolio allocation is critical to the stable growth of your investment portfolio.

Investing too heavily in any one area, especially if you’re not an expert in that area, can be a downfall here. So, for example, you would not want to be too overly exposed by allocating too much of your portfolio to stocks. Also, in this regard, be very careful about investing too heavily in your company’s stock.

Yes, many companies do over great incentives for you to invest in the company stock but be warned, this is not usually a good idea. Too many companies in our current climate have taken too much of a hit financially, and this can lead to you losing your entire nest egg.

But on the other hand, you may still enjoy your retirement year even when you’re broke. So taking a more balanced approach is needed for stability and smart, consistent growth throughout the years to come. I know, quite recently, many people made a fortune through Gamestonck, but chances are this won’t happen again soon.

Finally, one of the worst mistakes you can make with your 401k plan is simply borrowing against it. Ok, so there might be times when this is simply the only option you have, but it should be the very last course of action you take. You must remember that these retirement plans are designed for just that…retirement.

To dissuade borrowing, the rules are set such that the penalties for borrowing are very high, in some cases up to 10% of your account.

This can really put a damper on the growth of your 401k and thus can really cut into your future retirement funds.

So please only borrow against your 401k if it’s simply the only choice you have.

By avoiding the above mistakes and being careful when making early withdrawals from your 401k plan, you will be giving yourself the best chance at growing your 401k retirement account and thus giving you the best chance to retire in comfort.