A 401(k) plan is one of the best retirement savings options. However, while many people know how to use a 401(k), not everyone makes the most of their savings. In fact, some individuals can be making huge mistakes without realizing it.
No matter where you are on your path to retirement, it’s crucial to maximize your earnings. So, make sure to avoid these potential setbacks.
Not Maxing Out Your Savings Potential
In 2021, the maximum contribution limit for a 401(k) plan is $19,500. If you can afford to put that much into the account, you should. Remember, there are two primary benefits to putting as much money away as possible right now. If you are over the age of 50, you can contribute an additional $6,000.
First, you can deduct it from your taxes, reducing your overall burden for the year.
Second, your money grows in a 401(k), so the more you invest, the more you can earn.
Your 401(k) Plan may also allow for Roth contributions. This is a great option if you have a longer period of time until retirement. While you pay tax now on your contributions, the growth is tax-free down the road.
Ignoring Fees
How much do you have to pay to keep funds in your 401(k)? If you don’t know the answer, you need to find out. While most plans have low fees, they can add up. You may also be getting charged for services that you’re not using. You should consult your plan administrator if you have any questions on fees. If you feel the fees are too high and you are eligible for an in-service distribution, you can consider rolling your money into a traditional IRA to avoid them.
Putting Too Much Into Company Stock
Even if you’re working for a major enterprise like Microsoft or Google, it’s never a good idea to put too much money into a single stock. Instead, you want to spread your funds around so that you can absorb market volatility more easily. A good ratio is for about 10 or 15 percent of your account to be invested in the company.
Not Matching Funds
If your employer offers matching contributions, you need to take advantage of that program as much as possible. Why say no to free money? Keep in mind that many employers have unique requirements, such as staying with the company for a set period.
Be sure to read through these qualifications so that you can plan accordingly. In most cases, it’s best to wait until those funds are vested into your account before making any changes.
Next Steps
If you have questions about your 401(k) plan, we’re here to help. We can also assist you with other retirement planning solutions so that you can be better prepared. Just let us know how we can help.