The Biggest 401(k) Mistakes You Can’t Afford to Make
If you’ve been working for many years, you may have noticed that your 401(k) savings have steadily increased. While it’s great to see those numbers going up, there are some potential pitfalls that you need to be aware of and avoid if possible. As mentioned on the financial reviews goldco, mistakes with your 401(k) can cost you thousands – or even more – in lost retirement savings over the long term. But what are the biggest 401(k) mistakes you must watch out for? Read on to find out the answer.
Not Taking Full Advantage of Your Employer Match
Many employers offer a matching contribution when you contribute to your 401(k). This is essentially free money, so it’s important to take full advantage of this. If your employer will match 3% of your contribution, ensure you’re contributing at least 3% to get the full match. The more you contribute, the more money you can save over time. In short, don’t leave free money on the table.
Taking Loans From Your 401(k)
Taking loans from your 401(k) is a huge mistake that can have serious consequences for your retirement savings. When you take out a loan from your 401(k), you’re essentially taking money out of your retirement account that you could be investing in for the future. This means that you’re missing out on potential compounding returns and growth over time. Additionally, if you leave your employer or can no longer contribute to your 401(k), you have to pay back the loan in full or else face a hefty tax penalty.
Cashing Out Your 401(k) When Switching Jobs
Okay, let’s face it. As millennials, we’re all too familiar with the trend of switching jobs every few years. And when you leave your job, it can be tempting to cash out your 401(k) and use that money for something else. However, cashing out your 401(k) is a mistake that can cost you dearly in the long run. Not only will you have to pay taxes and penalties on the money withdrawn, but you’ll also miss out on years of growth and compounding returns. On top of that, cashing out your 401(k) disqualifies you from making any additional contributions until you open up another retirement plan.
Investing Too Aggressively
Finally, one of the most common 401(k) mistakes is investing too aggressively. While it can be tempting to invest in riskier investments that promise higher returns, it’s important to remember that they also come with a much higher risk of losing money. It’s better to take a more conservative approach and invest in low-risk investments such as index funds and bonds. This will help ensure that you don’t lose your money if the market takes a downturn.
To wrap up, it’s important to remember that making mistakes with your 401(k) can cost you dearly in the long run. Avoiding these common errors will help ensure that you get the most out of your retirement savings. Stay disciplined, take full advantage of employer matches, invest conservatively, and diversify your portfolio -all factors which are key to building a secure retirement.…