401(k) Retirement Plan Explained - Part III

Time to dive in on three major mistakes people make with their 401(k)

Cashing Out?- Last week, I mentioned options you have when leaving a job, and I see multiple people use that as an opportunity to cash out their 401(k). Indeed, I despise when people use that option as their first choice instead of a last resort. When you cash out the account, you are likely to be hit with a penalty if you are below the age of 59.5 and additionally hit with taxes. This option should always be used as a last resort. You want to give your retirement accounts as much time to build on the magic of compound interest. Your future self will thank you.

Missing the Match?- Maybe you don't have enough income to meet an employer match, but I encourage you to meet that match!!! A match means your employer will put the same amount into your 401(k) that you do, typically based on a maximum percentage of your salary. Hence, if your employer provides 3% of your salary, that should be the minimum goal. I don't want to see anyone leave money on the table.

Not Diversifying?- Overall, my high recommendation is to diversify your investments because life happens! Put money in your 401(k), put money in your Roth, put money towards paying off debt, put money in the bank, and put money into your business or real estate. Diversify your income streams to spread out the risks. The stock market is down this year, but real estate is still moving upward. Life happens, so you want to prepare for any unseen risks by spreading your money across the table.

Bottom Line: I wanted this series to be an eye-opener for new or?seasoned investors about using their401(k). I left off plenty of items, so don't take this series as the "be-all to end-all." Continue to grow independently, or find a trusted advisor to help you towards a healthy and fun retirement.

P.S.?- Neighbors, I provide financial advising and coaching across the country. Every year my busiest time is January in the New Year because people spend too much or finally get in the mood to focus on their money. Avoid future headaches, folks, be proactive, and seek counseling now! Money and time wait for nobody. Contact me if you want to sit down and be proactive with your money.